What’s a board to do?
Companies have a right to expect their employees to behave ethically and to advance the interests of the business, and Johnson Controls has a reputation for maintaining high ethical standards. The difficulty in situations where there is some sort of high-profile misbehavior, particularly of a prurient nature, by a company’s chief is that the behavior almost never rises to the level of “cause” under the executive’s employment agreement. Even if it did, one has to wonder whether the board of a public company would be wise to go through what is likely to be a public dispute over whether cause exists. Some stones are better left unturned after all. Therefore, the departing executive often gets a large severance package from the public company. Johnson Controls’ approach is interesting—and smart. The company gets to keep a CEO with long-standing service, does not pay severance, and avoids the upheaval of a sudden and unanticipated loss of leadership, but it still penalizes an ethical violation through the use of the compensation committee’s power of the purse. All’s well that ends well, right? Not so fast . . . .
What’s a CEO to do?
As Emily Dickinson wrote, “The heart wants what the heart wants—or else it does not care.” True words, but what room does that leave for a CEO infelicitously struck by Cupid’s arrow? Not much. It is difficult to see how Mr. Molinari, or anyone in a similar situation, could be expected to comply with the requirement to disclose an affair that could raise conflict–of-interest issues. After all, affairs are, by their very nature, secretive. That leaves two choices: do not have the affair (but see Ms. Dickinson’s viewpoint) or pay the price for love. Human nature being what it is, the latter is likely to be the choice every time. The only question is, What price love?