A publicly traded company’s CEO has admitted to an extramarital affair with a woman whom U.S. officials are now claiming is a spy for another country. This CEO is the face of the company that he helped to found, and no succession plan is in place.
As expected, the company’s board of directors announced it hired a law firm to investigate, but what will really come out of the investigation?
A board’s primary duty is to maximize shareholder value, and firing this prominent CEO would likely further erode the share price, which dropped 10% in the first two days since the news broke.
One financial consulting firm said that this CEO’s leadership is “crucial” to the company’s strategic direction. Meanwhile, a media outlet reported that this CEO has cultivated extraordinary access and influence over federal artificial intelligence policy.
Despite these factors, the board of directors must examine the following areas:
- Code of Conduct: Did the CEO’s behavior violate the company’s Code of Conduct? If it didn’t, then the Code of Conduct needs to be amended. Also, the board’s compliance committee needs to address the obvious ethics violation. If doing the right thing is paramount in a company, then it needs to be enforced.
- Succession: It has been reported that this company does not have a succession plan. This is a vital board function, since the CEO is the most important position in any organization. Now is the time to start identifying candidates who could take over (even temporarily), which could help improve investors’ confidence.
- Reputation: What the CEO has done is not a good look for the company, and the board must determine a way to mitigate and repair the company’s reputation. At the same time, the board has to be careful with its actions or inactions. For example, if the board takes no disciplinary action toward the CEO, then it risks harming its own reputation as a board with no power or teeth.