It’s an issue no company wants to confront.
A female employee accuses a corporate executive of sexual misconduct. The reputation of the company and its management are on the line. Shareholders worry the issue will sidetrack top executives.
Such allegations arise infrequently, but they are always an unwanted distraction.
Five years ago, a human resources executive at Compaq Computer Corp. resigned after the company reached settlements with two women who claimed he had harassed them.
In 1995, the widely admired chief executive of W.R. Grace & Co. was pushed out by his board because of evidence he had harassed female employees.
Now Sara Lee Corp., one of Chicago’s most prominent companies, is facing an ugly accusation about the conduct of Chairman and Chief Executive Steven McMillan.
Last week, a Dallas woman alleged McMillan rescinded a $140,000 job offer after she refused to continue a sexual relationship with him, according to a federal lawsuit filed in Chicago.
Sara Lee strongly denied the charges and said it would defend itself and McMillan in court.
But the company must do more than that, legal and corporate governance experts say.
Sara Lee has an obligation to show shareholders and employees that it has looked into the matter carefully and thoroughly.
“Understanding that people bring lawsuits for illegitimate reasons, every allegation has to be taken seriously, disclosed promptly and investigated thoroughly,” said Nell Minow, a corporate governance expert with The Corporate Library, an independent research firm. “Integrity is the single most important requirement of the CEO.”
It would be inappropriate, however, for someone lower in the chain of command to conduct the investigation because of the inherent conflict of interest and fear of reprisal, said Seth Lloyd, a partner at Dykema Gossett in Detroit who specializes in employment law.
Minow’s recommendation: The board should set up a special committee of outside directors to investigate the charges. This committee also should retain outside counsel, preferably lawyers with no prior connection to the company.
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Sara Lee says its directors were informed promptly about the allegations, and the board engaged the company’s outside law firm, Jenner & Block, to investigate.
But Minow is concerned about impartiality because Jenner & Block represents the company, the board and McMillan, personally.
“That’s not good,” she said. “The company, the board and the CEO must each have their own counsel when there’s a potential for a conflict of interest.”
Sara Lee said it doesn’t believe Jenner & Block has a conflict, because the lawsuit’s allegations are false.
No matter how strongly they are denied, sexual misconduct charges have proven to be the downfall of a number of CEOs, including former Florsheim Group Inc. Chief Executive Charles Campbell.
A lawsuit in 1999 filed by his secretary accused Campbell, a married man, of using a company apartment and cars for romantic trysts, arranging clerical jobs for girlfriends and keeping pornography in the office.
Campbell vigorously denied the charges and vowed he would be vindicated.
The Chicago-based company, which was controlled by investor Leon Black, launched an investigation and brought in its outside auditor to look at whether company funds had been misspent.
Results of the investigation were never made public, but six weeks after the accusations surfaced, Campbell resigned. Florsheim eventually settled with the woman, and the lawsuit was withdrawn as part of the agreement.