Responding to Inappropriate Behavior with an Appropriate Response by Martin Biegelman
The February 2021 announcement of the resignation of the CFO from global healthcare leader Eli Lilly for an inappropriate personal though consensual relationship shows how good can come from bad. Organizations cannot completely stop all inappropriate employee behavior, but they can positively influence appropriate conduct now and for the future. Eli Lilly had a swift response to allegations of CFO misconduct. The board commenced a comprehensive independent investigation with outside counsel and confirmed the allegation. The CFO was forced out, and the company declared that violations of their core values by any employee, and especially executive officers, will not be tolerated. While this is the most recent revelation of an executive ouster for inappropriate conduct with employees, unfortunately it will not be the last. Over the last few years there have been an increasing number of corporate officers who have been the subject of internal investigations for improper consensual relationships. In June 2018, Intel’s then CEO resigned after a consensual relationship with an employee in violation of company policy was uncovered. In February 2019, outdoor retailer REI’s CEO resigned for failing to disclose a personal relationship with another executive. In November 2019, McDonald’s fired its CEO for similar inappropriate conduct with an employee. The common denominator for all these cases included: Someone felt comfortable to confidentially or anonymously report a violation of company policy even though it involved a senior executive; The allegation was escalated to the board of directors; The board quickly responded with an independent investigation led by outside counsel; The investigation determined that the allegation was founded; Disciplinary action was handed down with removal of the senior executive; and The company disclosed the misconduct and the outcome to the public. There are important lessons for business organizations. Corporate officers and boards should look at the increasing number of reporting of code of conduct violations, including inappropriate personal and consensual behavior, as a good thing. Organizations need to quickly learn of concerns and issues that may require investigation. For that to happen, employees need to feel safe and empowered to report their concerns and issues, and to know there will be no retaliation for reporting in good faith. At its core, there needs to be organizational justice and employees need to be confident that it is exists for everyone, no matter their title. The Criticality of Organizational Justice Organizational justice involves employees’ perception of fairness in the workplace. It includes how an internal investigation is conducted, how outcomes are determined with impartiality and integrity, and how those outcomes are communicated to employees. Organizational justice also includes the actions of the investigators involved and that they must be unbiased. The subject and witnesses of the investigation must understand that the investigation process is fair, and any disciplinary action is based only on the evidence. In cases involving senior management, it is imperative that no special treatment is given because of executive status. Without organizational justice, employees will not believe that the investigation process is fair and just. As a result of the #MeToo movement, we have seen that organizational justice has not always been present for those reporting sexual harassment and assault allegations. The Importance of an Independent Investigation An independent investigation is needed when the subject of the investigation is the CEO, CFO, or other senior leader who may have directed, condoned, or knew about the alleged misconduct and did not act. An independent investigation is directed by a committee of the board of directors such as the audit committee or a special committee of the board. This board committee should select and retain independent counsel. Experienced forensic investigative consultants should also be retained to assist counsel. An investigation conducted by the general counsel, disclosure counsel, or management is per se not independent. The Department of Justice and the Securities and Exchange Commission have opined about bringing enforcement actions against corporate management for misconduct, so an independent investigation is warranted whenever management could face regulatory scrutiny. The DOJ and the SEC value independent investigations and can reward those organizations that conduct such an investigation. #MeToo Is More Than Just a Hashtag It is not just accusations of inappropriate personal and consensual relationships that companies have had to respond to. Allegations of sexual harassment and assault are some of the most pressing issues that organizations of all kind have and will continue to face. Yet, organizations have not always thoroughly investigated such allegations when they arose. Accusers have been ignored, they have been put on the defensive, and have faced retaliation for reporting these offenses. But times are changing. It took the revelations of sexual harassment and assaults perpetrated by Hollywood celebrities, television personalities, politicians, and corporate titans to spur a movement and bring much needed change in how organizations effectively address this egregious and illegal behavior. The #MeToo movement has reinforced the need for timely, thorough, and professional fact investigations and an appropriate remedial response if allegations are founded. The hope is that no one, no matter their position, accomplishments, or prominence, is beyond the reach of organizational justice. Not only are we beginning to see change when it comes to how sexual harassment allegations are handled, but we are seeing swifter action and resolution. Take the recent case of Moncef Slaoui. You may not know his name, but you are likely familiar with his role during the COVID-19 pandemic. Dr. Slaoui was the U.S. government’s chief scientist for Operation Warp Speed that spearheaded development of the COVID-19 vaccines until his departure in January 2021. He also spent 30 years at pharmaceutical giant GlaxoSmithKline (“GSK”) working in vaccine research and development. After his departure from Operation Warp Speed, he returned to his role as chairman of the board of a biotechnology company financed by GSK. In February 2021, GSK received “a letter containing allegations of sexual harassment and inappropriate conduct towards an employee of GSK by Dr. Slaoui, which occurred several years ago when he was an employee of GSK.”[i] GSK immediately retained a renowned law firm to investigate the allegations. While GSK did not release the details of the internal investigation, what we do know is that the law firm’s investigation quickly confirmed the allegations and in March 2021, Dr. Slaoui was fired from GSK. GSK issued a press release about the termination and that the investigation is continuing. The GSK CEO also sent a letter to all employees informing them of the firing and stated, “I want to be clear that sexual harassment is strictly prohibited and will not be tolerated.”[ii] The CEO reinforced that message by announcing that Dr. Slaoui’s name was removed from the company’s research and development center. It is essential to conduct an independent investigation, especially if senior executives are the subjects of sexual assault and harassment allegations. There is no excuse for not conducting an immediate investigation of a credible allegation. Since these allegations are potential criminal violations, law enforcement involvement is likely and even more reason to conduct an appropriate investigation. A flawed investigation will come back to haunt those responsible. In addition, updating the victim or complainant to the extent possible on an ongoing basis is a best practice in building trust for the investigation process no matter the allegation. I know of a public company that has a dedicated unit that keeps employees who have reported compliance issues informed of the investigation status. After the conclusion of the investigation and for an extended period, the contact continues to ensure that no retaliation has occurred. Unfortunately, those who retaliate have long memories. It’s Not Over Until There is Remedial Action At the conclusion of the investigation, remediation is a necessity. All too often, an internal investigation concludes without using the investigative results as a learning opportunity to determine the origin of the issue and use that finding to reduce the risk of reoccurrence. The DOJ’s Evaluation of Corporate Compliance Programs, updated June 2020, states that “a hallmark of a compliance program that is working effectively in practice is the extent to which a company is able to conduct a thoughtful root cause analysis of misconduct and timely and appropriately remediate to address the root causes.” Remediation is a key factor that the DOJ and the SEC considers in determining a company’s cooperation efforts when under investigation. Remedial actions are more than just stopping the misconduct and disciplining or terminating wrongdoers. In its best form, remediation includes modifying and improving policies, procedures, and internal controls. It includes training of employees as well as vendors, contractors, partners and other third parties that do business with the organization. It involves fair and balanced discipline. Besides disciplinary processes, there must be an appropriate incentive program to promote a culture of integrity, accountability, and compliance. Ultimately, it includes an assessment and enhancement of the ethics and compliance program to lessen the risk of regulatory, financial, litigation and reputational risk. As the Evaluation of Corporate Compliance Programs further asks, “What specific changes has the company made to reduce the risk that the same or similar issues will not occur in the future?” and “What specific remediation has addressed the issues identified in the root cause and missed opportunity analysis?” Although not often done, organizations should consider releasing a redacted version of the investigation report. This demonstrates transparency and reinforces a commitment to core values, policies, and procedures, and sends a strong message to employees. For example, in 2012 an independent investigation by consumer electronics retailer Best Buy found that the then CEO had engaged in a personal relationship with a subordinate in violation of company policy. The CEO quickly resigned. The company’s board decided “in the interest of transparency and accountability” to release the audit committee’s findings of the investigation.[iii] The failure to take appropriate and timely action to allegations of sexual harassment and assault can have a lasting impact, to say nothing of the financial and reputational damage. In March 2021, the University of Southern California (“USC”) announced it will pay $1.1 billion to settle lawsuits from 710 women for sexual abuse committed against them by a former campus gynecologist. The settlement has been called ”the largest sexual abuse settlement against any university and the largest personal injury settlement against any university in history.”[iv] Although the accused has been criminally charged for his conduct, a federal investigation by the U.S. Department of Education’s civil rights office found that USC failed to act on numerous allegations of sexual abuse with some going back 20 years. The government’s investigation found that USC “failed to investigate warnings from at least nine patients about Tyndall’s conduct between 2000 and 2009.”[v] Even when damning evidence was found, the university did not act. In 2016, “the university discovered over 200 photos of patients’ genitals in Tyndall’s office but didn’t investigate that either and allowed him to continue to see patients.”[vi] This speaks volumes about the absolute necessity for a timely and professional inquiry to allegations of sexual abuse, as well as all alleged misconduct. The axiom of justice delayed is justice denied has never been truer. When it comes to responding to inappropriate behavior with an appropriate response, be sure to remember a forewarning from Warren Buffett: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” [i] “Moncef Slaoui Departs Galvani Bioelectronic Board of Directors,” GlaxoSmithKline plc Press Release, March 24, 2021, https://www.gsk.com/en-gb/media/press-releases/moncef-slaoui-departs-galvani-biolelectronics-board/. [ii] Dan Mangan, “GSK fires Trump Covid vaccine chief Moncef Slaoui for ‘substantiated sexual harassment claims,” CNBC.com, March 24, 2021, https://www.cnbc.com/2021/03/24/moncef-slaoui-fired-from-galvani-bioelectronics-board-of-directors-over-sexual-harassment-allegations.html. [iii] “Best Buy Releases Results of Independent Investigation; New Chairman of the Board Elected,” Best Buy Co., Inc., May 14, 2012, https://www.businesswire.com/news/home/20120514005889/en/Best-Buy-Releases-Results-of-Independent-Investigation-New-Chairman-of-the-Board-Elected. [iv] Claire Colbert and Cheri Mossburg, “George Tyndall: USC will pay $1.1 billion to settle lawsuits for sexual misconduct against former campus gynecologist,” MSN.com, March 26, 2021, https://www.msn.com/en-us/news/us/george-tyndall-usc-will-pay-1-1-billion-to-settle-lawsuits-for-sexual-misconduct-against-former-campus-gynecologist/ar-BB1eXUas?ocid=uxbndlbing. [v] Tyler Kingkad, “USC mishandled gynecologist’s sexual abuse reports for decades, feds say,” NBCNews.com, February 27, 2020, https://www.nbcnews.com/news/us-news/usc-mishandled-tyndall-sexual-abuse-reports-decades-feds-say-n1144531. [vi] Ibid. About Martin Biegelman Martin Biegelman, CFE, CCEP Managing Director SunHawk Consulting, LLC Martin.Biegelman@SunHawkConsulting.com Martin Biegelman has spent a lifetime detecting, investigating, and preventing fraud and corruption in various leadership roles in law enforcement, consulting, and the corporate sector. His work on behalf of corporate management and boards includes conducting internal investigations, including independent investigations, alleging fraud, corruption, Foreign Corrupt Practices Act violations, conflicts of interest, whistleblower retaliation, and other employee and vendor misconduct. Martin’s work also includes developing, assessing, and enhancing corporate compliance and ethics programs including internal investigative and anti-bribery compliance programs, as well as performing fraud risk assessments. Click Here to view Martin's full bio SunHawk Consulting and its compliance consultants and advisors are highly experienced in conducting independent investigations with outside counsel. Their experience includes financial accounting fraud, conflicts of interest, inappropriate personal relationships, harassment, whistleblower retaliation, and other organizational code of conduct violations. Our subject matter experts can provide insight into your specific risk and other compliance program needs. We are happy to have a discussion with you and determine how we can possibly assist you in responding to and mitigating risk.