'Serious misconduct': how to handle bad behaviour in the C-suite

Recently, retail company Just Group announced that it had parted ways with Smiggle CEO John Cheston, alleging “serious misconduct”.

Cheston was in “serious breach of his employment terms and, on that basis, his employment has been terminated,” Just Group said in a one-sentence statement on 9 September, according to Bloomberg News.

While the former CEO’s law firm said in a statement “the allegations of misconduct are categorically denied,” the situation reinforces the importance of confronting misbehaviour in the C-suite.

‘Serious breaches’ in C-suite

“We are seeing more and more cases of senior executives, including CEOs, being exited for improper language and sexual harassment as well as threatening verbal conduct and so on,” Herbert Smith Freehills partner Anthony Wood told HRD.

Anyone in leadership should have no excuse for stepping over the line, Wood said, adding that contracts at the C-suite level typically detail express obligations and what constitutes a serious breach, such as sexual harassment or discrimination.

“You’ll have that overarching obligation in the contract,” he said. “They will have policies that include anything from breach of workplace health and safety standards to creating psychosocial risk and bullying.”

Bullying, harassment, drunken lechery and other bad behaviour at any level are grounds for disciplinary action or dismissal.

Disciplinary action for executives

When the culprit stands at the helm of an organisation, the matter becomes far more delicate. Whatever the case, complainants must be heard, Wood told HRD.

“My guidance to HR practitioners is to work out how you can engage with the complainant in a way to get their trust so you can let them know the matter is taken seriously,” he said.

“If steps are taken short of termination, how can you convey that to the complainant so they can feel listened to? If they don’t feel listened to, they are much more likely to raise a bullying complaint or a harassment complaint or some kind of other general protections claim, which can be exceptionally difficult to settle and do brand damage to the business.”

When complaints are made, HR will typically become involved.

But not in every case, as often serious matters against a member of an executive team are referred to the board or a board committee, Wood said.

“The board committee, certainly in the case of the CEO, would then take its own advice – very often, independently of the HR team … They [might] see a conflict potentially in having the CEO, for instance, being investigated by either a peer or a subordinate.”

It depends on the confidence and trust a board has in the HR function and its independence, he said. “[The board] members might think there may be a conflict between the roles of the head of HR and conducting an investigation.”

Investigation of complaint against leadership

A company will be better primed for a leadership-level disaster if its HR function is more independent and less partisan, Wood said.

“[It’s about being] able to understand that protecting the reputation of the business is perhaps more important than protecting individuals within that business who may have misconducted themselves.”

Complaints can be aired directly by an aggrieved employee or by an external business engaged by the complainant, which is more common in the case of whistleblowers, Wood said.

“The manner in which an investigation is conducted will depend on how it is brought forward,” he said. “Most larger employers have very clear policies about investigating misconduct, as well as having policies that go to not just sexual harassment but also acceptable workplace conduct.”

Legal avenues of complaint

Investigations are increasing, Wood said, because employers and boards are taking more seriously the rights that employees and third parties have to launch grievances. It’s sundown in the Wild West, thanks in large part to strengthened whistleblowing laws under the Corporations Act, anti-bullying laws in the Fair Work Act and changes to the Sex Discrimination Act.

“Over the past decade, employers have become more transparent about addressing misconduct or improper conduct throughout all layers of the business, and, in part, that is associated with the greater recognition of individual rights to make grievances,” he said. “Employers are having to respond to that.”

Wood has watched the space for 30 years and acknowledges that, in the old days, there was more of an inclination from employers to cover up, or at least not to fully investigate, concerns about misconduct.

“That’s not to say those matters were left unattended, but more to say there was some kind of secret to how it was all conducted, and there was no transparency because there was no necessarily objective, third-party oversight over those matters,” he said.

Unacceptable behaviour

If legitimate complaints are trending upwards, it means more people are willing to come forward, which is a good outcome.

“There was a lot of scepticism when the bullying laws were introduced a decade ago that they might create an avalanche of frivolous claims or be abused,” Wood said. “The truth has proven, quite successfully, that it has changed workplace behaviour for the better.”

It is not unknown for a board to feel intimidated by a CEO. When their leader slips up, they can freeze.

“There are certainly examples where boards have been probably a little too timid in addressing some instances of misconduct by a CEO,” Wood said.

“The question they need to face is ‘How unacceptable is [the behaviour]?’ They have to balance stability of the business against the values the company espouses.”

There are challenging situations where a senior executive is an exceptional leader but flawed. If that’s the case, a board will have to decide whether the person can be brought into line with coaching – or whether that would be a waste of time.

“Sometimes it’s going to be very clear that the behaviour is so entrenched and inherent to the characteristics of the individual that it is really hard to change,” Wood said.