Should CEOs date their employees, brought to you by the letter J

In late 2006, a friend asked for my opinion on something that’s been unsettling to the staff. Apparently the ceo was dating a staff member. They didn’t hide their affection in the office. Staff apprehensions grew because their off-the-cuff remarks were leaking to the ceo and friendships were getting polarized. So this was my opinion.

I believe what one does behind closed doors is a private matter. There’s also nothing strange about going public with one’s relationship. Holding hands at the mall, getting married, everyone does it.

There’s nothing wrong if the ceo and his staff are legally engaged or married to each other. After all, mom and pop stores make up a huge chunk of the small business community. But if the couple are getting into each other’s pants just for fun, test-driving each other, then it raises eyebrows. No it has nothing to do with ethics or morals. It has everything to do with something that starts with “J.” The Judgement of exposing the company to the unknowns of a test-drive that can turn south on a dime.

Its tempting to say well its been going on for a while and everybody knows about it, so what? That would be ignoring the elephant in the room and the first flaw in judgement. Here’s what people think but won’t say out.

• Will the boss be under the influence of the partner?
• Will the boss discriminate others in favor of the partner?
• Will the boss make tough but necessary decisions, like giving a staff reprimand to the partner if he/she deserves it?
• How does a staff lodge a grievance if it involves the partner or his/her friend?
• Will the staff feel forced to be less than honest when they air their opinions, even among themselves?
• Will the staff feel compelled to obey the partner and his or her close friends for fear of reprisal?
• Can the partner be trusted to keep staff secrets?
• Is this a good example? What if everybody in the company starts sleeping with each other?
• If there is a breakup, and if its a nasty one, how will it effect employee relations?

So, the ceo shrugs it off and claims he has a superhero ability to keep work and romance separate. That would be the 2nd flaw in judgement: not understanding that when reality fights perception, perception always wins. And the perception will be how can two lovebirds not share information? Can people really act objectively when they’re emotionally involved? It doesn’t matter if these aspersions are founded or unfounded. Perceptions undermine the integrity of the ceo.

When you lose integrity you eventually lose influence and control. That’s a slippery slope. Noise and friction in the company starts to go up, morale drops, productivity tanks. You need to pay more people to do the same amount of work and your cost of monitoring goes up. Prolonged low morale and excessive monitoring invites staff turnover. You’ll incur unplanned recruitment and reassimilation expenses and lose revenue over interrupted projects. If the company is publicly funded, unsteady returns will invite enquiries. That’s more time spent away from the market at the expense of opportunity.

In other words, while you think the fears are imaginary and unfounded, the damage can already be measured in dollars and cents.

How does judgment come into the picture? Well, judgement is like the white striker ball on the snooker table. One move triggers lots of other things to move, in directions you may not expect. A good ceo will not introduce unjustified risk into the company. He guards his integrity jealously because without it, he knows he could lose the trust of his soldiers. He exercises judgments that will not put shareholder value in harm’s way. Knowing how perception trumps reality, he thinks of the consequences of his actions, including that of his personal conduct.

That is the burden of judgement on a ceo and that is why for companies that care about good fundamentals, ceo selection is probably the most important decision an investor will ever make.