Bloomberg News

Sex-Scandal CEOs Spark Surge of Notoriety in the C-Suite

November 13, 2012

Sex-Scandal CEOs Spark Surge of Notoriety in the C-Suite

FBI agents carry boxes and a computer from the home of Paula Broadwell, the woman whose affair with retired Gen. David Petraeus led to his resignation as CIA director, in Charlotte, N.C., on Nov. 13, 2012. Photographer: Chuck Burton/AP Photo

Chief executives may be no more prone to extramarital affairs than in the past, yet the notoriety for getting caught has exploded.

The resignation of Lockheed Martin Corp. (LMT:US)’s incoming chief executive officer Christopher E. Kubasik after a relationship with a subordinate follows similar actions at Best Buy Inc. (BBY:US), Restoration Hardware Holdings Inc., and Hewlett-Packard Co., among others. The day Kubasik stepped down, Central Intelligence Agency Director David Petraeus resigned because of an affair.

Company directors are increasing vigilance of executives’ behavior because they are being held accountable for governance. Communication via e-mail and text messaging, as well as mobile phone records and social media interaction, often detail the exploits, making it harder to cover them up.

“It’s more zero tolerance,” said Elaine Eisenman, dean of executive and enterprise education at Babson College in Wellesley, Massachusetts, and a director at shoe retailer DSW Inc. said. “It used to be more of the boy’s club - more of a ’wink, wink” situation. Now ’wink, wink’ doesn’t work anymore.”

Because corporate boards are more willing to take action, employees are also more likely to use hotlines and other tools to turn in the boss, Eisenman said.

‘Whole Life’

“The executive’s whole life gets consumed by the company and there’s less social interaction outside of the office, so there is more temptation to create a relationship in the work arena,” said Bill Ide, chairman of the governance center at law firm McKenna Long & Aldridge LLP.

At the same time, corporations need to police the activity more aggressively in the face of a more-demanding public and stricter governance standards. E-mails and text messages give them the means to uncover it.

“Yes it happens, but the directors can’t excuse it, because the moral credibility of the organization simply matters more,” said James Post, a professor at Boston University School of Management, who has written on governance and business ethics. “There are subcultures within our society where this sort of activity is seen as normal, such as the movie industry, where it has been for decades. But in most boardrooms it isn’t.”

Lockheed, Boeing

Kubasik resigned following a probe that confirmed a “lengthy, close and personal relationship” with someone who worked for him, current Chairman and CEO Robert Stevens said on a Nov. 9 conference call. Kubasik, Lockheed’s chief operating officer, was slated to become CEO on Jan. 1.

Lockheed hasn’t provided details about Kubasik’s relationship with the female subordinate, who it said is no longer with the company. Molly Weaver, a spokesman for Kubasik, also has declined to provide more information beyond the married executive’s Nov. 9 statement in which he expressed regret.

In 2005, Lockheed competitor Boeing Co. ousted then-CEO Harry Stonecipher for having an affair with an employee. The move came 15 months after he returned from retirement to lead the company’s recovery from a purchasing scandal.

In recent months, executive indiscretions also led to a $1 million pay cut and added oversight for the chief executive officer at American International Group’s plane-leasing unit and prompted Stryker Corp. (SYK:US) to oust its CEO.

Risk Takers

A top executive hired to take risks in the market is probably going to take risks in other aspects of his life, including relationships, said Noel Biderman, CEO of Avid Life Media Inc. in Toronto. Avid operates the AshleyMadison.com service to help connect married people for illicit affairs.

“This usually wasn’t ‘Hey I went to the Playboy mansion and met one of these Playmates and I’m leaving my wife behind,’” he said. “They actually developed a ’wife’ kind of relationship with some kind of employee first that led them to believe they would be happier in the arms of that person.”

In a survey of 573 AshleyMadison.com members who self- identified themselves as a CEO of a company, 91 percent said they had already had an affair prior to signing up and 52 percent said those relationships were with a co-worker or professional associate.

CEO Groupies

Chief executives also find themselves the target of the same sort of attention that follows musicians and actors, said Donald Schiller, a senior partner at Schiller DuCanto & Fleck in Chicago who represented Stonecipher’s wife in their divorce.

“Great athletes often are tempted by groupies, and CEOs of publicly traded companies now have their groupies, too,” Schiller said.

The difference is that athletes and musicians aren’t bound by corporate governance policies, he said. When the relationship involves a co-worker, it tends to be a long-term affair that can damage a company, he said.

“The couple starts working late and pretty soon it leads to better assignments and a file clerk becomes a corporate vice president,” Schiller said. “It’s bad for morale when that’s happening, and it’s bad for the performance of the CEO, and eventually it becomes a matter for the board.”

The shifting dynamics of marriage are also making it more likely that an executive will be attracted to a co-worker, said Betsey Stevenson, an associate professor of public policy at the University of Michigan Gerald R. Ford School of Public Policy who has studied the economics of marriage.

Marriage Roles

Thirty years ago or longer, a man with a college degree most often married a woman without a degree and a woman with a degree was more likely to be single -- the workplace and home were kept separate, she said.

“Now, people are more likely to marry someone at the same professional level as themselves and they are more interested in an intellectual match,” said Stevenson, who calls such arrangements Hedonic marriages. “When it goes wrong, it’s more likely to be explosive.”

The same tools that enable the lovers to communicate make it easier to uncover an affair, said Ide, who is also chair of the Governance Center advisory board for the Conference Board, which advises companies on C-suite issues.

In the Petraeus case, the Federal Bureau of Investigation traced e-mails to another woman from Paula Broadwell, the author of a Petraeus biography identified as having the affair with him, according to two officials briefed on the probe.

E-Mail Trails

In their probe, investigators stumbled across what one of the officials described as extensive online correspondence between Broadwell and Petraeus, most and perhaps all of it using their respective Google e-mail accounts. The FBI searched Broadwell’s house last night.

In the allegations against Best Buy CEO Brian Dunn, the company said on one four-day and one five-day trip abroad last year, Dunn contacted a female employee by mobile phone at least 224 times, including 33 phone calls, 149 text messages and 42 picture or video messages.

The increasing acceptance of infidelity in the pages of tabloids or in other aspects of society doesn’t lower the bar for the CEO, said Eisenman.

There are common-sense standards for relationships in the workplace, though specifics can vary. Co-workers can often date, as long as one is not supervising the other, Eisenman said. If there’s any hint of supervisory authority, at any level of the company, it usually runs afoul of policy, she said.

“The challenge is undue influence and undue power,” Eisenman said. “I don’t care about the sexuality aspect of it. It’s an integrity and value issue around one person being treated differently than another person and having access to things another person might not have.”

‘Human Nature’

“Human nature is probably what it’s always been, but the number of crises that go public are far more frequent than when I started my career,” said Beth Saunders, Americas chairman for FTI Consulting strategic communications in Chicago. She has advised companies including Coca-Cola Co. and Dow Chemical Co. on crisis management and other issues for two decades.

“We have more crises, more of it dealing with revelations in the corporate suite and far more of it reputational in nature and leading to the CEO and other executives transitioning out,” Saunders said.

The changing values in society will only complicate the situation, Boston University’s Post said. People are getting married later and first having many more relationships.

“We live in a time of great moral ambiguity,” Post said. “For someone who aspires to the corporate suite, there needs to be some serious introspection on what’s the price you’re willing to pay for that in terms of personal as well as professional behavior.”

To contact the reporter on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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Companies Mentioned

  • LMT
    (Lockheed Martin Corp)
    • $196.84 USD
    • 0.41
    • 0.21%
  • BBY
    (Best Buy Co Inc)
    • $39.14 USD
    • 0.25
    • 0.64%
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