The recent resignation of Rodney McMullen as CEO of grocery industry giant Kroger is a reminder that for corporate board members, personal conduct still matters.
In a press release, the company said that on February 21, it was made aware of certain personal conduct by McMullen that “while unrelated to the business, was inconsistent with Kroger’s Policy on Business Ethics.” Although the company did not provide details about what McMullen had done, the press release stated that his personal conduct “is not related to the Company’s financial performance, operations or reporting, and it did not involve any Kroger associates.” However, the company “immediately retained outside independent counsel to conduct an investigation, which was overseen by a special Board committee.”
The board’s response was decisive and swift: McMullen resigned within 10 days of the board becoming aware of his conduct. Kroger’s lead independent director Ronald Sargent, who has been a director at Kroger’s since 2006 and is the former chairman and CEO of Staples, was appointed board chairman and interim CEO. Sargent will serve in that role until the newly formed search committee appoints the company’s next leader.
What is important for board members to take away from the way this resignation came about is the speed with which the company moved to obtain outside counsel, conducted its investigation and took action. The company became aware of McMullen’s conduct on February 21 and by March 3, it released a statement announcing his resignation and Sargent stepping in as interim CEO. Resolving the investigation and stabilizing the company’s leadership that quickly speaks volumes. Kroger’s board appears to have been ready for this type of crisis and therefore has limited any damage the incident could cause the company.
The personal conduct of the CEO and corporate directors is sometimes overlooked as a major risk factor for the company and the board. In today’s hyper-partisan political environment, certain private actions disclosed to the public can have an impact on how the corporation is viewed by stakeholders and customers. It is a risk management issue that may deserve greater attention from corporate board members. The reputation of the company could be at stake and the unethical action of one director could potentially create legal liability for the entire board and the company.
It might be a good idea for all corporate boards to:
Review and re-emphasize company policies on professional conduct and business ethics. Make sure that company standards are keeping pace with shifts in public sentiment on controversial issues. Clarify the company’s position on ethical decision-making, conflicts of interest, personal conduct and confidentiality.
Review crisis management procedures for breaches of professional conduct and personal behavior. Kroger wasted no time in starting an investigation and coming to a resolution. Is your board prepared to move as quickly? Does each board member know the role they should play in this type of crisis? Any delays will prevent the company from moving past the unfortunate issue as quickly as possible. The longer it takes to resolve, the greater potential for financial losses and reputational damage.
Communicate that the crisis was resolved quickly with minimal risk to the company. Through the press and by direct conversations with key shareholders and stakeholders, communicate that the board has handled the crisis and is moving the company forward in a positive direction. Explain how any changes in direction or leadership will benefit the company in the future.
