Last month Nestlé announced that it had dismissed its chief executive, Laurent Freixe, because he had not disclosed a romantic relationship with a direct subordinate.

The multinational food brand confirmed that the relationship had breached its code of business conduct and that Freixe was fired following an investigation overseen by the firm’s chairman. 

While the story made the headlines, Nestlé is just the latest in a series of companies to find out that romantic relationships can present serious governance challenges, underlining the need to have effective procedures in place.

Conflicts of interest

Data published in 2019 revealed that UK workplaces are a breeding ground for romance. The survey by job search engine Adzuna.co.uk found that two thirds of Brits have had a romantic relationship with a colleague and 28% met their current partner at work. However, those in leadership roles would be advised to ensure their relationships with staff remain firmly platonic.

Peter van Veen, ICAEW’s Director, Corporate Governance and Stewardship, says: “CEO romantic relationships with staff are a serious business issue because they can really damage the company’s reputation. It's not something the board can just sweep under the carpet.”

In particular, the power discrepancies at play mean that the attitude of subordinates changes. “As a leader, you need to be aware that your position changes the dynamic and is highly unlikely to be perceived positively by colleagues. Frankly, it's just not the right image for the CEO. Also, most companies have an ethical expectation of their leadership that goes beyond working hours or the workplace. If you're a figurehead, then anything you do that is questionable is seen as potentially damaging to the brand.”

The reality is that romantic relationships with colleagues will most likely affect working relationships. There’s a risk – or perception – that it could hamper judgement or exert undue influence over promotions and remuneration. Van Veen says: “If you're the CEO, there is no way you can date anyone in the office without it being seen as a conflict of interest, because you are ultimately their boss.”

It also raises questions about the CEO’s moral compass, van Veen adds. “If they have been lying to the board about having relationships with staff, it demonstrates not just poor judgement but constitutes a breach of trust. The board would be right to wonder what else the CEO might be hiding from them. Likewise, if the CEO does not see a conflict of interest in dating subordinates, what else do they have poor judgement on?”

It’s nothing new for CEOs to be fired for having workplace relationships, but today people are more likely to speak up and raise concerns.

“With the CEO, there is always a high risk that the rumour mill will get in the way of business. If people are talking about your love life rather than your achievements and business objectives, it becomes a major distraction. Mostly, it is not for the board to get involved in the CEO’s love life, but when this interferes with the CEO's credibility or their ability to do their job, they have a responsibility to act,” van Veen says.

Setting expectations

While boards may feel uncomfortable confronting such a delicate subject area, mitigating the risk is key. Recent scandals might also prompt a discreet conversation between the chair and the CEO on the subject. “It's a delicate topic to raise, but it’s worthwhile establishing some ground rules and expectations as to when the chair expects to be informed,” van Veen says.

The last thing anyone wants is a Coldplay situation where this is playing out in the public domain, van Veen adds. “Boards need to be involved, because a public story could damage not just the reputation of the CEO, but that of the company. If you have to suddenly start looking for a new CEO, it will be an expensive, time-consuming exercise which could also affect the company’s standing and share price.”

Jane Williams, founder and director of HR consultancy People Innovation, says: “A CEO having a personal relationship with a member of staff raises important governance and organisational culture questions with potentially serious ethical, reputational and governance risks.

“It is best for the CEO to formally disclose the relationship to the chair of the board and sometimes the company secretary or HR director so that mitigating action may be taken. For example, one party could transfer or leave the organisation before it begins to negatively impact on the business.”

Most companies will have a policy on relationships at work outlining which roles are in scope together with potential outcomes, bearing in mind many people do meet life partners at work. “Clearly any of the board roles including the executive and non-executive are in scope to be a problem if people are forming personal relationships with members of staff,” Williams says.

Daniel Zona, senior associate in the Employment team at law firm Kingsley Napley, says organisations should consider implementing a ‘relationships at work’ policy to provide clarity about appropriate conduct.

“Guidelines can help safeguard employees against issues like sexual harassment, retaliation and allegations of favouritism and could help defend against any future liability for the employer. An effective policy will give employees a clear idea of what is and is not appropriate conduct in the workplace.”

A policy can also put in place some red lines that should not be crossed, for example a ban on senior employees having a relationship with their subordinates or junior colleagues in general. “Banning workplace relationships may act as a deterrent but could be difficult to enforce and may even be considered an unlawful interference with employees’ right to a private and family life,” Zona warns.   

“Taking a moral stance on board-level romantic relationships does not enter the discussion; what is in the best interests of the business and its stakeholders must come first,” Williams says.