Directors often assume that their greatest challenge when a complaint is brought against the CEO will be in determining whether the allegations are substantiated. Photo by Getty Images/iStockphoto

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What should a board do when a serious complaint arises respecting its CEO?

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The complaint may involve harassment, bullying, discrimination, retaliation, conflicts of interest, financial impropriety or other misconduct. The allegations may ultimately prove true, false or somewhere in between.

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At the outset, the board likely does not know. What it does (or should) know is that the next several days may determine not only the future of the chief executive, but of the board’s own credibility and whether it or any of its members should best resign.

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Directors often assume that their greatest challenge will be determining whether the allegations are substantiated.

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The more immediate challenge is ensuring that the organization responds appropriately before that determination can even be made.

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The first 72 hours are rarely remembered for what the board did right. They are remembered for what it failed to do.

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The difficulty is that complaints against senior leadership arrive burdened with uncertainty. The facts are often incomplete. Emotions run high. Rumours spread quickly. Directors find themselves under pressure to act decisively while possessing only fragments of the information they require.

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In such circumstances, the greatest risk is not making the wrong decision. It is making a premature one.

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One of the first questions is deceptively simple: Who should receive the complaint? If allegations concern the chief executive, management cannot investigate itself. The matter must immediately move beyond the normal reporting structure and into the hands of independent directors, typically through the board chair, lead director or an appropriate board committee.

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This might seem obvious. Yet some of the most significant governance failures begin when a complaint remains with management for too long. A board cannot exercise oversight on a matter it is unaware of.

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The second question is whether outside counsel or outside investigators should be retained.

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Boards sometimes hesitate. Independent investigations are expensive, disruptive and often uncomfortable. Directors may also believe they can assess the issue internally before involving external advisers.

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That instinct is understandable. It is also frequently misguided.

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The decision to retain outside counsel, which should always occur, is not solely about legal advice. It is about independence, credibility and process. Employees, regulators, shareholders and courts may be willing to accept an unfavourable outcome. They are far less willing to accept a process that they perceive as compromised.

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Another difficult question arises almost immediately.

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Should the CEO remain active while the investigation proceeds? There is no universal answer.

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Some allegations may not justify any interim action. Others may require restrictions on authority, limitations on access to personnel or information, or temporary leave pending the investigation’s outcome.