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The Wayward CEO

2012 November 14
by John Wallbillich

Sometimes a public-sector scandal can illuminate something that has been going on in the private sector for some time.

Last Friday, when the news of the resignation of CIA director David Petraeus broke, Lockheed announced the forced resignation of its incoming CEO. A recent tip had alerted the company to an alleged relationship between president Christopher Kubasik and a subordinate. That would be in contravention of Lockheed’s ethics code.

Lockheed commenced an internal investigation that was swift (two weeks) and decisive (he has to go). By all appearances, Lockheed handled a difficult situation as well as you can. Textbook, really.

In the aftermath, however, there have been a few comments on these executive/subordinate relationships that I find puzzling. Two were contained in an article yesterday reported by Bloomberg.

The first remark is from Bill Ide, former Monsanto GC and current partner at McKenna Long & Aldridge:

“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…”

This sounded to me more like a commentary on the era depicted in “Mad Men” than the morays of 2012. Not that it matters as to the violation in the Lockheed case, but Mr. Kubasik is married. Given the pay and perks public companies bestow on their CEOs, I have to think that those who are unattached can find other ways to date.

An even more confusing comment was attributed to Donald Schiller, of Schiller DuCanto & Fleck. Mr. Schiller had represented the wife of former Boeing Co. CEO Harry Stonecipher, who departed Boing in 2005 under circumstances that are somewhat similar to the recent events at Lockheed.

In explaining the current spate of CEO departures under an office romance cloud, Mr. Schiller goes in a new direction:

“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.”

CEO “groupies?” I have a hard time picturing this; it also sounds rather close to blaming the subordinate. Mr. Schiller is on the mark when he speaks of morale. CEO-subordinate relationships that I have heard about first-hand were almost always the worst kept secret at the company involved.

It is said that every FAA regulation is the result of a crash. Ethics rules are similar; those prohibiting romantic relationships with subordinates are borne of experience, that often resulted in messy litigation. Even when it doesn’t, the subordinate often departs abruptly, sometimes without another job lined up. Virtually never with a severance payment.

The only way compliance works is when senior executives take ownership. And a key tool in geting employees to take ethics codes seriously is when they see that they are enforced consistently. As harsh as it may seem, Lockheed went through one major “teachable moment” when Mr. Kubasik departed under unfortunate circumstances.

And Lockheed has already named a new CEO to take over in the new year; it’s current COO Marillyn Hewson. That’s good news on many levels.

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