Ethics: Don’t Reward Bad Behavior

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Golden Parachute

The CEO of United Airlines and two other senior executives stepped down in September of 2015 in the midst of a federal corruption probe and potential violations of the company’s code of ethics. Subsequently, CNBC reported that the United board of directors granted the CEO a $4.9 million termination settlement plus 60,000 shares of stock worth more than $3 million. He also received free parking for a lifetime in downtown Chicago and free travel on United for the rest of his life.

Many of the perks and cash compensation of what is negotiated when a CEO is being recruited is known to few outside the board room of publicly held companies until after the deal is signed. This, along with what they receive should they leave, only comes under scrutiny when they leave under less than favorable conditions. Often this is because of bad business decisions, poor leadership, or illegal/ unethical actions mandating the CEOs removal.

Double Standard

I am not a lawyer or a compensation expert, but I have conducted and supervised many investigations of employees because of allegations of illegal or unethical actions. The investigations were necessary because the misconduct of an employee put the company’s financial assets and reputation at risk. In some cases the employer sought criminal prosecution and financial restitution when a fraud was committed. In most cases these were the right things to do in order to keep a rogue employee from victimizing another company.

But why do some companies continue to play under two sets of rules? Why are there different standards or expectations? Those at the most senior level should be held accountable to the same moral and ethical standards of others in the organizational. As a matter of fact, because of their leadership position, responsibilities and compensation, you can argue they should be held to a higher standard.

Ethics and the Board’s Responsibilities

The Ethics and Compliance Officer Association (ECOA) notes in The Ethics and Compliance Handbook: A Practical Guide From Leading Organizations that board of directors have four primary responsibilities in a company’s ethics and compliance program:

  • Be informed about the overall strategy, risks, content and operations of the ethics and compliance program.
  • Provide reasonable oversight with respect to implementation of the ethics and compliance program.
  • Ensure that the ethics and compliance program functions effectively.
  • Understand risks unique to board members and their responsibilities to honor the organization’s ethical standards.

To this last responsibility I would argue that board of directors cannot “honor the organization’s ethical standards” by continuing to provide sweetheart deals and golden parachutes for bad behavior. If a CEO, or any executive candidate for that matter, wants to negotiate into their employment agreement terms that would provide them significant financial rewards even when fired, board of directors must understand they are not fulfilling their ethical responsibility to the company. Although they may believe the candidate is the best and only fit for the company, other very qualified candidates are available. Find one that is comfortable enough in her or his own skin. Find one that doesn’t want or need to be rewarded for failing to do their job or live up to the ethical standards of the company. Find one with morale courage and strength of character.

In closing lets ask why we reward poor performance with a golden parachute. What message are board of directors sending to employees, shareholders, and customers? What does it say about the board of director’s ethical expectations of future CEOs? What does it say about the direction of their own moral compass?

 

About the Author

Jim Dale is the owner and principal of Seven Citadels Consulting. Jim brings to clients more than 30 years of security and risk experience in both the private and public sectors. Formerly the Chief Security Officer (CSO) for three Fortune 500 companies, Jim is a graduate of the University of Nebraska at Omaha and was a career officer, commander, and special agent with the Air Force Office of Special Investigations. He is certified threat manager (CTM) and board certified in security management as a Certified Protection Professional (CPP). Jim is a member of the Association of Threat Assessment Professionals (ATAP), the International Association of Professional Security Consultants (IAPSC) and ASIS International. Jim is also a trustee of the Business Ethics Alliance and has spoken to numerous organizations on ethical leadership.

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