Should a CEO sit on the board of his/her own directors' companies?

Thursday, September 30, 2010


Q: Our CEO was recently arrested for a hit and run that resulted in some property damage. The situation made the newspapers. While the incident itself has been both legally resolved and handled internally in executive session, the board is divided about how to record this in our minutes. Some feel the issue should be dealt with head on. Others would prefer to merely indicate that a personnel issue was discussed and so noted in the individual's file. There is a concern that we may be exposing ourselves to a charge of libel by naming the CEO as the person discussed. How private are such personnel issues?

A: I’m sure a lot of people out there are breathing a sigh of relief that they don’t have to deal with your situation. But, the reality is that this could happen in any organization at any time. CEOs are people and people can get into messy situations. What you’ve shared happens more often than you might think.

The privacy issue you raise actually varies from state to state, so you should definitely consult a lawyer in your community. Assuming, though, that this is not a concern where you live, let me offer some other important issues for your consideration.

Normally, I subscribe to the “less is more” school of minutes. However, in this particular instance, where there was a serious offense, an arrest, it made the papers and led to some sort of restitution, I think you have to be more explicit than “a personnel issue was discussed and so noted in the individual’s file” – unless, the board opted to do nothing about it. In that case, as a colleague of mine suggests, you want to bury the subject by making any notation in the minutes as weak as possible.

A critical question that should play a role in your decision-making is, “Did the hit and run occur while the CEO was on organizational business?” If so, your response must be stronger than if it did not. But, in either case, my concern is that donors and other supporters undoubtedly read about the incident – especially if your organization is a prominent one and/or your CEO is a fairly public figure. They will question whether and how the board acted on this. If they can’t be confident that you took this seriously and acted in a responsible manner, they may doubt the board’s ability to steward the organization during challenging times. This could lead them to jump ship.

There should be no exposure to a libel charge as long as you stay with the facts and avoid anything that is supposition, since libel requires misrepresentation. (Just a reminder for other organizations that may find themselves in a similar situation, an arrest is not a conviction.) Actually, according to Steve Nill, a lawyer I consulted on this matter, the more public a figure your CEO is, the less you have to worry because that person would have to prove you acted maliciously – that is, that you knowingly included false information in the minutes.

To protect both the board and the organization, though, I would also call your insurance company. Tell your claims representative about the situation. Often insurance companies require that they be notified so that they are not surprised if someone decides to sue. But even if your company doesn’t require such notification, the representative may have some excellent suggestions for proceeding forward at this time. Some insurance companies will even provide you with legal counsel to help you avoid potential pitfalls.

One last thought… If you don’t have crisis management policies already in place, your board should run, not walk, to grab its collective pen! It is especially essential to have a plan for dealing with personnel issues like this that have the potential for becoming public, because unfortunately, as I indicated at the beginning, incidents like this or embezzlement of organizational funds, sexual harassment, and child pornography – to name just a few – tend to crop up more often then we’d care to admit. And they can leave the organization with serious egg on its face.

The plan might be to sweep any such incidents under the rug (Not my recommendation, by the way!), wait for the media to find you and pray that they don’t, or get out in front of the incidents with the media. If you decide to speak out, the plan should indicate who will serve as the voice of the organization. The plan is a good place to consider consequences for wayward individuals, as well. It’s always easier to decide these things in the abstract, when the emotions tied in with any specific individual are not at play.

A special thank you to Stephen Nill, J.D., GPC. and the founder/CEO of, for his added insights to this response.

Note should be made that even though an attorney was consulted in the construction of this answer, the above should not be construed as legal advice. Questions such as these are sent with minimal information and the answers are necessarily broad.

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