By Abby Kotun and Ladd Hirsch

For many company founders, the business they created is far more than an investment and is closer to a baby they have nurtured and supported.  As the company achieves a significant level of success, however, the founders may not be quite as involved in day-to-day operations of the business.  In this later phase, the owners may have retained an experienced CEO along with other senior officers who are striving to maximize the company’s bottom line while the owners focus on strategic alternatives and other opportunities outside the business.

It is at this point, when things appear to be running smoothly and company is on a profitable glide path, that the owners are stunned to learn that the rock star CEO they retained or one of the members of the CEO’s hand-picked management team is accused of sexual misconduct.  This situation is becoming more common as the EEOC reported a 12% increase in the number of sexual harassment charges filed in fiscal year 2018.  EEOC Preliminary FY 2018 Sexual Harassment Data (Oct. 4, 2018), https://www.eeoc.gov/eeoc/newsroom/release/10-4-18.cfm.  What are the next steps that company owners should take when these allegations are made?  The answer is of critical importance to the business, because the company’s stakeholders are watching how this is handled, including other employees, managers and customers.  This post presents some important Dos and Don’ts for company owners to consider when faced with their #MeToo Moment.[1]

1. Don’t Ignore It.

The owner’s first instinct may be to attempt to ignore the allegations or sweep them under the rug.  Don’t do it.  Don’t disregard or downplay #Me Too allegations even if the officer or the manager who is charged with the allegation may otherwise appear to be doing a great job for the company, and his/her sudden removal may disrupt the business.  The initial reaction to avoid taking action is likely to be self-defeating, because in many cases, the failure to promptly address a serious internal problem will ultimately be seen as a cover-up that is viewed just as negatively as the problem itself, and it may make things much worse.

In addition, the failure by the company to act timely to address allegations of this type can result in harsher negative publicity, as well as larger damage awards in any resulting litigation.  The damages in litigation may increase if the person who has been accused of sexual misconduct engages in additional bad behavior that could have been avoided if the company had acted promptly or if the accused officer learns who has come forward to present the allegation and the alleged wrongdoer then lashes out to retaliate against the whistleblower.

Bottom line – when serious misconduct allegations first come to light, the company must deal with them promptly and professionally as discussed below.

2. Investigate Promptly and Thoroughly.

Allegations are not proof, and all allegations of sexual misconduct are not borne out as truthful after careful investigation.  Further, some allegations, while truthful in part, have another side to the story, which would implicate multiple parties.  For example, the initial allegation may be one that places blame solely on the company officer, but a careful investigation could reveal that multiple parties were engaging in conduct harmful to the company, including misusing company funds, sending threatening communications that amount to blackmail or engaging in other conduct that directly violates company policies.

Once #MeToo allegations surface, therefore, the company needs to act promptly, but without engaging in a rush to judgment.  A skilled, independent professional should engage in a process that includes interviews of the accuser, the accused, and all fact witnesses, as well as compiling and then evaluating all available documentary evidence, preferably under the protection of the attorney-client privilege.  The investigator may also issue a report and provide recommendations.

Even if the company has in-house legal counsel and/or an HR department, it is often advisable to retain experienced outside counsel to investigate these allegations where a high-ranking employee—like the CEO, CFO or COO—has been accused of misconduct.  The retention of outside professionals has the benefit of maintaining objectivity, because it avoids the need for anyone employed by the Company to investigate their superior officer.  Further, the results of the investigation by outside counsel are more likely to remain privileged from discovery in any future litigation that results from the allegations.

3. Take Action, But Proportionate to the Allegation and Conclusions Reached.

Even in the #MeToo era, not every claim or infraction, even if proven or admitted, should result in immediate termination of the offending party.  A single thoughtless joke or comment, even when it is inappropriate, should not be treated the same way as actions that constitute sexual assault.  While no company should tolerate a hostile workplace where sexual misconduct takes place, not every offense warrants dismissal of the accused.  If the company concludes that it needs to terminate the employment agreement of a senior officer, it will need to be prepared to defend a wrongful termination suit by the fired employee.

Once a determination has been made regarding what the company believes (or is advised) has occurred, a range of consequences should be considered with the prompt termination of the accused officer as the most severe consequence.  Lesser options for an offense that does not merit termination include immediate suspension with or without pay pending the outcome of the investigation, reduction in base compensation and/or elimination of bonus, sensitivity training and potential reassignment of duties or management responsibilities.  In all workplace investigations, it is important to communicate to the accuser the outcome of the investigation and the corrective actions that are being put into place by the company.

Importantly, it may also be advisable for the company to retain a public relations agency as soon as the allegations have become publicly known.  The public relations agency can then work together with outside counsel as these matters require a multi-faceted response from the company and its senior management team.

Conclusion

The #MeToo movement has empowered women and men to no longer stay silent when they are subject to abusive behavior in the workplace by the company’s officers and managers[2].  As a result, these allegations are likely to continue to impact private companies, and business owners need to respond to them promptly, effectively and decisively to maintain the long-term success of their companies.  This proactive approach to misconduct allegations calls for the company to retain outside, experienced counsel to conduct a prompt, thorough investigation.  Company owners can then carefully evaluate the results of the investigation and implement the full range of consequences that are tailored to the specific factual determinations reached by the outside investigators.

[1] In the year after the creation of the #MeToo hashtag, 810 notable figures were publicly accused of sexual harassment, sexual assault, and other related behavior, with 159 of the accused being businessmen.  Nicole Lyn Pesce, The #MeToo movement has changed policies across industries, but there’s still work to be done, MarketWatch (Oct. 4, 2018), https://www.marketwatch.com/story/the-metoo-movement-has-changed-policies-across-industries-but-theres-still-work-to-be-done-2018-10-04.

[2] In 2018, Nike is reported to have fired at least “half a dozen male senior executives for ‘conduct inconsistent with Nike’s core values and against [its] code of conduct.’” Avivah Wittenberg-Cox, #MeToo Now Means Business, Forbes (Apr. 30, 2018), https://www.forbes.com/sites/avivahwittenbergcox/2018/04/30/metoo-now-means-business/#19cdc669c236.