Whose business is it anyway? Managing personal relationships at the C-suite level – transcript

The following is a transcript of an interview with Julia Sutherland, Counsel, conducted by Julie Mills, Head of Workplace Learning.

Hello and welcome to the Australian episode of our first Ashurst Employment World@Work podcast series.  I'm Julie Mills.  I'm the Head of Workplace Learning based here in our Sydney office and in this episode we're looking at managing workplace relationships but particularly those with senior executives and the C-Suite level and we're really looking at the question: Whose business is it anyway?  Why do employers have to get involved in person relationships that ostensibly have nothing to do with work?

Now this is an issue that's come up very prominently in Australia over 2017 and it's generated a lot of media coverage for a number of employers and interestingly they're from very different industries and they've managed the issue very differently.  Now to look at this question today, I'm joined by Julia Sutherland, a Counsel here in the Sydney Employment team also.  

So Julia, the obvious question everyone asks, a relationship, two consenting adults, what's it got to do with the employer?

Thanks Julie, well it's a good question, because sometimes it might not have anything to do with the employer, and really, personal relationships in the workplace are only going to be an issue for the employer if they actually impact, in some way, on the people's ability to discharge their roles or on the business more generally.

Okay so you were talking about "discharging their roles", in what way could a personal relationship stop someone from discharging their role?

Personal relationships, particularly at the C-Suite level may give rise to questions of conflict of interest, claims of harassment or discrimination and we've seen some examples of that in the last few years in Australia in 2014/15, nearly one every year and call into question an executive's leadership and their judgement.  All of those things, not only do they impact on the person's ability to actually perform their job but they might also have, and can often have, an impact on the business commercially and reputationally.  So in my view, the key thing to all of these risks, is really to put some processes in place at an early stage to effectively troubleshoot them and to identify where things might go wrong in the future and hope that they don't go wrong but at least you've got the processes in place to capture them before things happen.

So Julia, you've just given us a thousand nuggets of gold all in one …

Have I?

What I might try and do is just break it down a bit.

Managing conflicts of interest

Sure.

So the first thing, or one of the things you talked about was a conflict of interest.

Yes.

Now I know this is something that a lot clients struggle with.  Like, how do you work out, how do you identify that there is a conflict of interest?

Yeah okay, so let me give you a practical example because that's often easier to grasp.  An actual conflict of interest might arise where, say, an executive has some form of management authority over the other person who they're in a relationship with.  By that I mean they might be performance managing that person. They might be responsible for setting that person's remuneration.  Making a decision about whether that person is entitled to a bonus. Where you've got two people in a personal relationship and the more senior person is having to make a decision about those things, there's an actual conflict of interest there.  That's one example.  There's also a possibility of what we might call a perceived conflict of interest, where there isn't actually direct conflict but other staff members, customers, members of the public, shareholders for example, they might see or perceive that there's a conflict of interest because of a particular personal relationship arising.

Okay, so let's assume that a conflict of interest is identified, what can an employer do about it?

Yeah that's a good question.  I think the … so there's a question just before that I think, which is how can you sort of head it off, because if you put something in place before the relationship starts or in the relationship's infancy, then you can manage when or whether conflict will arise, or really put things in place to avoid it.  Let me give you another practical example.  You might have a mechanism that requires an executive to disclose a personal relationship to one other person in the business, and then you know exactly who the person is that's having the relationship and the other partner to the relationship, and you can identify whether any actual conflict arises, and maybe put something in place like change reporting lines, or require the more senior person not to make decisions about the more junior person's remuneration, for example.

So running with that example then Julia, you refer to putting a mechanism in place, what does this look like?  What sort of a mechanism?

Well it could be a contractual term.  It could be a policy or something in a partnership agreement for example, if we're talking about partners.  They're the sorts of examples that I have seen.

Have you seen it in a contract term, have you?  I've never seen it in a contract term. I'm curious.

I have seen them in agreements. Yes, I have. They're not that common, as you know Julie, they're not that common but there are, particularly I've seen it in the professional services industry and you know, to some lesser extent, in other industries, but they do arise.  But the thing you've got to think about carefully is who does the person need to disclose to, because issues of concerns about confidentiality are likely to arise and you need to give the person, the executive, some comfort that the reason for the disclosure is to protect not only the commercial and reputational interests of the employer but also it's part of the protection of the executive's personal brand because I said at the start that one of the issues that often arises with personal relationships when they go wrong in the workplace, is that it calls into question the executive's leadership and judgement. This sort of mechanism will assist them to manage that for themselves.

So what you're talking about there is not only the mechanism but how it operates, the level to which it operates so …

Yeah.

In a lot of organisations the disclosure, disclosures are required to, sort of, HR or someone in that function whereas here, if we're talking about a C-Suite, in most cases HR are going to be below that person …

Yeah.

So we're talking, are we, disclose it to the board?

That's right or even just the chairperson or a member of the board, so it doesn't need to be more broadly – communicated more broadly than that.  The issue is not, and I think this is where managing personal relationships becomes a bit tricky.  It's not about delving into the person's personal circumstances.  They are entirely irrelevant until or unless they get to the point where they're impacting on the employment relationship between the employer and the executive, or the business.  So there's no need to broadcast it widely.  The trick is for the employer to work out who was the person who needs to know that information so that they can make sure there are checks and balances in place to mitigate any commercial or reputational risks down the track for us as the business.

And that's inevitably very difficult.  The "need to know" versus "wants to know" dichotomy.

Absolutely.  

Yes, there's a lot of people who want to know who don't need to know.

Yeah and I think, oh you know, a bit of in this subject matter, there's a lot of people that have their own personal opinions about certain relationships and it can be very difficult to try to put those out of your mind and just focus on the business reason for why we need to manage this, but that really is the key in all circumstances.

And you were talking before around not only the executive's reputation and branding but also the organisation.  So let's say there is no conflict of interest because I know a number of the investigations I've run into matters like this, there isn't a conflict.

Yes.

What else can come in, what else comes into play that makes this still an issue that an employer needs to manage?

I mean, obviously there's always going to be a risk if the relationship turns sour that there's some form of harassment or discrimination claim that is brought.  As I said at the outset, that is not an uncommon scenario and of course when people enter into personal relationships you're not thinking that it's going to turn sour but it does happen and it's very difficult to manage as an organisation, the risk that someone might bring a claim against the other employee.  Of course an employer is vicariously liable for the acts of its employees during the course of their employment.  An employer would like to say to both parties: well look, we're not going to be liable for any conduct that you engage in as part of a consensual personal relationship.  That can be a little bit tricky when things go sour to manage that.  So certainly reputationally, if claims are made, there has been a tendency in the last few years in Australia to bring the media into play in those circumstances particularly if someone's senior and well-known and then that inevitably can play out badly for the employer.

Or potentially all parties.

Correct, yes.

Yep okay, so, we talked about conflict of interest being one trigger for an employer to get involved and there's also potential claims that we went through.

Yes.

Are there any other potential triggers?

The impacts of organisational culture and values

I suppose one other area that's a little bit tricky is, if you're dealing with somebody particularly senior, they're a leader of your organisation, so it will be important, one would think, that they epitomise the values of the organisation and they lead from the front as it were.  There may be a situation where a particular personal relationship means that it's impacting or there's some form of tension between being a leader and epitomising those organisational values and continuing the personal relationship. But I want to caution everybody there, that it's not about making a moral judgement here about whether a relationship is appropriate or not, that's not the issue at all.  The issue is whether there's some friction or inability of that executive to discharge all inherent aspects of the role and if that includes a values proposition, then that might be another thing that the employer needs to have a look at.

So if we try and contextualise that, say we've got an organisation who has a very much family-oriented focus and purpose and mission and values, and if someone's married and having a relationship with someone they're not married to, then presumably that could clash with the values, cause reputational damage, both internally and externally, is that the sort of thing you're talking about?

Possibly, possibly, but you need to be treading carefully there as I said because really again the fundamental – with managing these relationships in the workplace as it is pretty much Julie with everything we advise on - the fundamental principle is you can manage them to the extent they impact on the employment or the business, if they don't do that, then they really are not the employer's business anyway.  They are matters of a personal nature. But in terms of you asking me where else, you know, might there be an issue with these relationships, yes if you've got strong family values as part of your cultural statement and you've got a relationship like the one you described, that could be a situation where you might say the executive struggles to lead the business as required by the employer.

Okay and so, I guess, you'd need some sort of evidence beyond just gut reaction, we don't think this is good, you'd need, what, stakeholder complaints, reductions in sales.

Well at least you'd need a clear values statement and some concerns that have been raised if the person isn't discharging those duties appropriately.  How that might play out is difficult to sort of foreshadow.

So assuming that we've got one of these cases where there's a conflict of interest that we haven't been able to manage or we've got an inconsistency with values and our cultural statement.  If the decision then is made that someone has to go, what are the issues that then arise?

Termination rules and protecting confidentiality

Well if a decision has been made that one of the two people in the relationship can no longer be employed by the company or the organisation, then obviously you're moving yourself into a different sort of area of legal risk management which is termination risks and depending on which partner you're looking at in terms of termination or dismissal they might be different risks.  So ultimately to terminate somebody's employment, you generally need a good reason for that and if there is no reason to terminate that person's employment, for example the person who's not at the C-Suite level, then that might give rise to a risk of unfair dismissal claims or adverse action or discrimination claims for example on the basis of association with another person.  So decisions of that nature need to be approached with some caution.

And what about confidentiality when someone goes.  If they're going in that context, I guess essentially you don't want your dirty laundry aired externally.

No, nobody does and yet again, that is exactly what we see happening isn't it?

Time and time again.

When you look at the recent examples in the media in the last few years then yes, that does tend to happen.  Look really, the options you've got are limited.  Of course, most employment matters to the extent there's any dispute or some form of resolution or mutual agreement to end employment, what you would do is enter into a deed a release or some form of agreement by which the parties would agree to keep the terms of the agreement confidential.

Does that work?

Yeah, yes and no, but most of the times, it does work.  Over the years there has been one case where I've had a party breach a confidentiality agreement, and in that case the client decided that yes it was a breach but it wasn't sufficiently serious to take any steps in respect of.  Of course, you know, if somebody makes a decision to breach a confidentiality agreement, money has already been paid to them for example, so that really they've got what they want out of the agreement. What the employer is faced with doing is going to court to try to enforce that agreement to keep silent as it were, that might not be a particularly palatable thing to do, including because it just raises the profile of the situation even further.

It's more public, yeah.

So look I think my suggestion would be to always require somebody to sign an agreement of that nature, particularly if you're giving them money or giving them a benefit that they are not otherwise entitled to, to resolve some sort of acrimonious dispute but you know, you've got to proceed with a degree of caution there, that you know that there's a chance that individuals, particularly people who are personally aggrieved might change their mind and tell people that information [agrees] and then you're either prepared to act on that document and go to court or you're not.

Well that was pretty much the content that I wanted to cover with you today.  Were there any other pearls of wisdom you want to leave us with before we close?

I think it's a very tricky issue and I think it's particularly tricky when it comes to people's attention when the relationship has gone sour.  So I suppose all I can do is just suggest that, to the extent any business is concerned this might become an issue for them, have a think about whether it's appropriate to put in some contractual requirements or disclosure requirements somewhere just so that the business has an opportunity to manage them and control the communication a bit.

So it's basically the employer saying: we want to be at the wedding and the divorce not just the divorce, is that really it?

That's pretty much it Julie.

Okay.

A very nice analogy.

Thank you Julia for joining us today and for sharing your thoughts on what really is a very interesting issue that crosses both legal, societal, political, and moral kinds of spectrums.

This podcast is actually part of a series that we've put together.  Our first 4-part series for the Ashurst Employment World@Work podcast series so have a look out for the other three episodes from our Singapore, London and French colleagues and we would love to hear any feedback you've go on the new podcast format.  Otherwise, thank you for listening and we hope you can join an Ashurst Talks podcast again soon.  Enjoy your day.