Executives behaving badly: why personal conduct is a growing risk for business

What is the difference between a hook-up, a fling and a relationship? For a board director of a big company in 2023, this may now be required knowledge.

Bernard Looney of oil company BP and Edward Tilly of Cboe Global Markets resigned last month after their failure to disclose past relationships with employees to the board. CNN Worldwide president Jeff Zucker and McDonald’s boss Steve Easterbrook also left their roles for similar reasons in recent years.

Departures such as these have made the private behaviour of business leaders an increasingly hot topic for corporate boards, raising the question of how closely directors need to scrutinise the personal conduct of top executives – from workplace relationships, bullying and inappropriate use of social media, to an individual’s tax affairs and embellished CVs.

[ Sex, lies and magical thinking about chief executive behaviour ]

“It’s bloody embarrassing. What a horrendous way for an organisation to lose its CEO,” said one headhunter about Looney’s resignation.

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Reputational risk has become as high a priority as financial risk, but board discussions have historically tended to focus on issues such as product reliability, service quality and compliance, rather than personal conduct. Directors are now increasingly having to make judgments based on what is socially acceptable, as well as legal and ethical, to ensure they maintain the confidence of staff, investors and customers.

Olivia Streatfeild, a board member at British newspaper and magazine publisher Reach, says corporate board directors should be more engaged in shaping the overall vision, strategy and culture of their company.

“This has normally been a tick-box exercise,” she told woman business leaders this week at a networking event hosted by The Up Group. “There has been a lot of focus on sustainability, on tech ... but organisational health and culture is a thing we need to get stronger on.”

If you tolerate certain behaviours, it means you are basically giving it free licence

—  Allyson Zimmermann of Lead Network

There are a number of reasons why it pays for companies to prevent personal conduct issues blowing up. At stake is trust in a leader and the organisation. Unplanned chief executive departures and wider management upheaval present a huge headache for directors, creating uncertainty and disruption for staff and investors alike. The share price can also suffer.

“If you tolerate certain behaviours, it means you are basically giving it free licence,” says Allyson Zimmermann of Lead Network, who is an expert in promoting workplace diversity.

Connectivity and heightened media interest also mean reputational risks are greater than in the past. Executives themselves are more exposed because of their social media profiles and online presence.

“Good personal conduct of executives is as critical now as it has been at any point in time. It is just now the information flow is worldwide and immediate,” says the chair of a multinational company. “Ten years ago it would have been dealt with in the boardroom and we wouldn’t have been witness to it. Now everything is so visible.”

Staff are more vocal, particularly the new generation of employees who have high expectations of their seniors and plenty of public outlets to vent grievances – from social media to websites for professionals such as Fishbowl. Boards are also under more pressure from activist investors.

“Expectations are just different today. There is way more scrutiny of top leaders and more transparency is required. If you have an issue with that then you probably shouldn’t be in the role,” the chair adds.

Psychometric and personality tests can give a sense of a person. But even these tests can be gamed to an extent

The Institute of Business Ethics is publishing guidance for board members on developing an ethical business culture. It is pushing boards to consider behaviour when they hire and promote staff and to train all directors and senior leaders to ensure corporate values are lived by day to day.

The guidance follows institute polling in July showing that just one in three Britons believe companies operate ethically. “Whenever a senior executive behaves in a way that is inconsistent with the values a company has, it suggests ‘do as I say, not as I do’ and that is not helpful,” said Ian Peters, who heads the institute.

To prevent bad behaviour hitting the headlines and plunging the company into damage control mode, businesses should get ahead of any potential problems.

One way to stop HR issues snowballing into a broader crisis is to give more seniority to human resources directors. Many companies have elevated HR officers to leadership or boardroom roles, enabling them to directly advise the chief executive.

Headhunters can help boards scrutinise external entrants to senior roles, checking references and quietly approaching their own trusted sources for views. But, while this might reveal insights into an individual’s behaviour in the workplace, it may not shed much light on their private lives.

[ How to navigate the workplace relationship minefield ]

Psychometric and personality tests can give a sense of a person, whether they take risks or like the limelight, how they resolve conflicts within teams and, fundamentally, how truthful they are. But even these tests can be gamed to an extent.

Some executive search firms use a variation of the “Daily Mail test” – asking candidates to offer up information that might be embarrassing enough to make it into the tabloid. Others scour open-source data and social media to unearth material on political opinions and other potentially problematic behaviour.

Authors of a new report by Hedley May, the executive search firm, said: “The character of a leader is as important as their competence.” Boards must think carefully about the broader leadership team, too. “Understanding the character of those individuals, and their willingness to exercise judgment and be courageous, is just as important as understanding the CEO,” they said.

In the US – more so than in Europe, where private lives are largely protected – boards seek to go “above and beyond” to find out who they are hiring, according to another headhunter.

In the event that governance processes and HR functions do not catch bad behaviour, there has to be a way for the average employee to take action

Some companies offer “forensic referencing”. Others might go as far as instructing corporate spies to discover secrets about their employees in the same way government agencies do. “The number one rule is integrity. How did someone answer their interview questions? Did they hesitate?” says the headhunter. The context is important – unveiling a political opinion is one thing. A racist remark is completely different.

Scrutiny of internal candidates is usually less intense as they are – in theory – a known entity. But this can bring its own complexities; at what point should appraisals of personal conduct take place for existing staff: at every promotion? On entry into the leadership team? Is it reasonable for an employer to excavate an entire career’s worth of indiscretions for an employee to secure a chance of having the top job?

One senior HR professional says to prevent conflicts of interest and abuse of power it is also important to find out personal details such as whether an employee is godparent to a colleague’s child or drinking buddies with another member of staff. “These questions are just as relevant as who you may have slept with,” he says.

In the event that governance processes and HR functions do not catch bad behaviour, there has to be a way for the average employee to take action. Well publicised and effective codes of conduct and properly functioning whistle-blowing mechanisms without fear of reprisals are essential. Some companies have ethics champions throughout the company that individuals can turn to.

“People need to feel empowered,” says one adviser to big companies. “But is it really possible to catch everything? Obviously not.” – Copyright The Financial Times Limited 2023