Boards keep eye on CEO conduct
Executives often seen as role models for rest of society
Chief executives of public companies, already under the spotlight for their financial stewardship, are facing a more unforgiving attitude by their boards on personal misconduct.
Brian T. Keane resigned as chief executive of the Boston technology company Keane Inc. last week after a female executive accused him of sexual harassment. Keane publicly termed the allegations ''utterly baseless and false," but said he had agreed with Keane board members that they created an unacceptable distraction for the company.
The incident, coming just over a year after Boeing Co. chief executive Harry Stonecipher was fired for having an affair with a female subordinate, underscores the higher expectations and more aggressive responses of boards in matters of personal propriety.
''Boards are holding their CEOs accountable for personal conduct beyond the mainstream activity of their jobs," said Jeffrey Sonnenfeld, associate dean at the Yale School of Management. ''As we've seen the rise of the heroic CEO, they are expected to model the code of conduct for the rest of society. They have to be an emblem of moral purity. If they don't want to do that, they shouldn't take the job."
One measure of how seriously boards take misconduct charges today is the events at Keane Inc. The company on Friday said Brian Keane, while denying ''unlawful sexual harassment," admitted to ''poor judgment" in his personal conduct.
''The board mobilized quickly, we engaged inside counsel, we retained outside counsel, and we spent the better part of the weekend trying to come with a course of action," Keane board member Larry Begley said. ''When this situation surfaces, when you're a publicly traded company, it's critical that you focus the board's attention on it."
Among the factors driving the new accountability are a greater fear of litigation and corporate governance reforms favoring independent directors. (Seven out of the nine shareholders at Keane are ''outside" directors who aren't executives or Keane family members.) Also coming into play are a more assertive posture by women in the workplace and more scrutiny given to the peccadilloes of high-profile business leaders, such as Jack Welch and Dennis Kozlowski.
Case law has been evolving in recent years to hold companies liable for the actions of senior executives in many instances, said Kathleen C. Stone, partner in the Boston law firm of Looney, Cohen, Reagan & Aisenberg. ''Boards have to react to claims of corporate misconduct because the corporation could be facing liability," she said. ''Fear of liability may be fueling the drive to be a good citizen."
Sylvia Maxwell, management professor at the Simmons School of Management in Boston, said many boards and their audit committees are focusing on ''reputational risk" in hiring and evaluating chief executives and other senior managers. With more empowered directors, and more nonemployee outside directors, few chief executives can survive a sexual harassment charge these days.
''They have to ask him to resign, and he needs to do that because it's their responsibility to protect the company from risk, both reputational risk and financial risk," Maxwell said. ''Reputational risk is one of the most important issues any company faces now."
Attitudes toward chief executive liaisons, even consensual ones, have changed dramatically since 1980, when Bendix Corp. chief executive William Agee was having an affair with Mary Cunningham, an executive he promoted. Rumors about the affair led to her resignation -- but not his. (The pair later married after they both left Bendix.) ''If that happened today, I don't think the woman would be the one asked to leave," Stone said.
Recent corporate reforms in response to the financial accounting abuses at companies like Enron Corp. and WorldCom Inc. earlier this decade have emboldened boards on nonfinancial issues as well, suggested Washington consultant Paula Stern, former chairwoman of the US International Trade Commission.
''It's part of a broader change where independent directors are clearly expressing themselves," Stern said. ''There's also a sharper scrutiny of all individuals in a high-visibility position. It's almost incumbent on you to be a role model for the larger public. It's not just the shareholders, it's your customer base and it's the employees who report to you. You have to be sensitive to that."
Robert Weisman can be reached at weisman@globe.com. 
