Darren Huston, Chief Executive Officer (CEO) of Priceline, resigned this week after an internal investigation concluded that he had an inappropriate relationship with a woman at the office. This affair, not surprisingly, was found to be a violation of the company's code of conduct and the board's expectations for executive behavior.
Under the terms of the agreement with the Priceline Board, he will not receive any severance payments and forfeited $13 million in equity awards. Ouch. While the relationship came at a significant personal cost to Huston and his family, the cost to the business regarding lost revenue and employee morale is not yet known.
Here's some of the collateral damage Priceline can anticipate based on this recent scandal.
Inappropriate relationships at work--especially with the top boss--can be infuriating and baffling to employees. Some employees may feel embarrassed to work for the company or feel a real sense of resentment.
Scandals disrupt normal operations. Staff and the leadership team alike trust executives to make the best possible decisions for the company. When affairs surface, the news can shake core beliefs about the organization's values and direction. Compound this with the departure of the CEO and, for a time, everything is up in the air. Whether that disruption is two days or two months, operations, investments, and forward momentum is impacted. Only the most skilled transitional leaders can quickly restore a sense of normalcy.
Further, recent research suggests that the impact is more significant than anyone previously thought and can spread to other executives not directly involved. This is referred to as the "moral spillover effect." According to this Harvard Business Review article, "the transgressor's colleagues were still viewed with suspicion, even when they hadn't worked with him directly."
Declining sales, increased turn-over, and dismal morale are common aftershocks. These secondary effects can do immense damage to the business because so many people are impacted and can seem out of proportion with the affair itself, which was between two people (three if you count Huston's wife in this case.)
Personal morals aside, inappropriate relationships put the business at risk--something few, if any, employees, board members, and shareholders will understand or excuse. When a similar relationship between the CEO and an employee surfaced at Best Buy in 2012, "the board had found that the relationship 'negatively impacted the work environment.'" When a high-profile affair comes to light, there is a negative brand association with customers. Even customers who don't particularly care about the ethics will correlate Priceline with negativity for some period of time into the future.
Another negative impact of high-profile affairs between senior male executives and rising female leaders is that it sets all women back. Because of fear of appearances or motives, men tend to be less likely to mentor and sponsor women aspiring to take on leadership roles in the wake of a scandal, according to this research done by the Center for Talent Innovation.
Many people believe that carrying on secretive relationships means that someone is more likely to be sneaky about others things, too. Interestingly, recent research on the Ashley Madison scandal was done at the University of Texas at Austin. After painstakingly combing through the data to find CEOs or Chief Financial Officers (CFOs) (from people who'd use their work email addresses)had registered for the site, researchers wanted to test whether or not these companies were more likely to be the target of a class action lawsuit or had made financial misstatements. Researchers found that there was a significant relationship between personal ethics and professional ethics. In fact, as Shankar Vedantam explains in this NPR story, "Corporate infractions were more than twice as likely at firms that had a CEO or a CFO who signed up on Ashley Madison compared to similar firms where the top executives had not signed up on the site."
Even though in Priceline's case, Huston did not directly supervise the employee, as the CEO this is irrelevant. Relationships between boss and employee are always messy and rarely end in anything but a complete catastrophe and are better avoided altogether.
Last Valentine's day, I wrote this piece with my husband (and former officemate) about finding love at work. It's a great place to meet someone and fall in love with their work ethics and smarts. However, I'd like to take this opportunity to add a big fat asterisk to that and say, "Unless you're after the boss."