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Ethics and professionalism: How should you handle a CEO who refuses to follow policy?

Cheryl Foy and Ken Fredeen call on in-house lawyers to submit their ethical dilemmas anonymously

Ethics and professionalism: How should you handle a CEO who refuses to follow policy?

We’re offering this advice column to support you as you tackle ethical and professional issues. Go to canadianlawyermag.com/inhouse/ethics to submit your questions anonymously. 

SCENARIO: The CEO of a public sector organization wants to give employee A a benefit, with a value of more than $100,000. The vice president of human resources advised the CEO that the employee is not entitled to the benefit under the organization’s policy. The CEO wants the VPHR to give the employee the benefit even if it includes amending the policy. The VPHR has come to the general counsel for advice. How should the GC respond?

FOY: It’s troubling and a poor practice to apply policies inconsistently or change them arbitrarily. However, in-house counsel has to ask whether the CEO’s behaviour is illegal. The illegality of the behaviour triggers a requirement to act. Rules of professional conduct that apply here cover integrity, honesty and candour, obligations arising when the client is an organization and the obligation to withdraw when an organizational client is engaged in illegal conduct. 

The Federation of Law Societies of Canada Model Code has been adopted in part by most Canadian law societies. The code requires in-house lawyers to address “conduct that is dishonest, fraudulent, criminal or illegal,” including acts of omission. This would be conduct that is “likely to result in substantial harm . . . as opposed to genuinely trivial misconduct.” Judgment is applied in determining whether the conduct is illegal and surpasses trivial. If it does, the first obligation is to escalate to the next level up; in this case the board. The in-house counsel may, if the illegal behaviour continues unaddressed, have to resign. 

Is failing to follow policy potentially illegal behaviour? Yes, it is if the CEO doesn’t have the necessary authority. If, for example, the authority over benefits policies resides with the board, then the CEO must follow the policy and can’t amend it without board approval. If the CEO insists on acting contrary to policy or on amending it, the conduct is “illegal” and the counsel has a duty to escalate. 

The nature of escalation varies. Success means addressing the wrong, while avoiding embarrassing the CEO or unduly escalating the matter. Hopefully, counsel’s relationship with the CEO is such that a conversation can resolve things. Failing that, try a quiet word with a board member who can engage the CEO. Failing that, try a conversation with the board. Resignation is likely not a worry here as the board would either support the CEO’s decision or direct compliance with the policy. The board has the authority to amend the policy or waive it, so once the board is aware, legal counsel’s role is done. 

If the CEO has authority over the policy, there’s no obligation to escalate. However, as it’s in the best interests of the organization to act consistently with policy and to set policy based on general principles rather than specific facts, I’d seek out the CEO to discuss but would let the matter rest there. 

FREDEEN: This is a wonderful example of the need for the counsel to be independent and at all times represent the interests of her client, which in this case is a public sector entity. It also calls upon the important skills of objectivity, curiosity and persuasion. 

The facts and foundation for the CEO’s decision are important: they could be appropriate or inappropriate (based on a family or personal relationship). The counsel is the ethical gatekeeper for the organization, and is not simply there to do the bidding of the CEO.

The counsel will need to probe and understand all of the factors and implications associated with the decision. Navigating through this first requires a discussion with the CEO to understand the basis for the policy waiver and to explore why this is an issue for the organization. This early discussion could lead to a reversal of the decision.

In the absence of an early resolution as the board governs, this policy decision (which is significant) is one on which the board will need to weigh in. The counsel will need to start with either the chairperson of the board or an appropriate board committee. Particularly as a public sector organization, there are many important stakeholders that the board will need to consider before concluding on the matter.  

By sharing our experiences, we can learn to overcome concerns and address our ethical issues head on. Go to canadianlawyermag.com/inhouse/ethics to submit your question anonymously.

 

Cheryl Foy is university secretary and general counsel at Ontario Tech University. She provides strategic and tactical advice on matters of governance, jurisdiction, policy and process to all members of the university community.

Ken Fredeen is general counsel with Deloitte, a member of the leadership team and teaches on the role of the general counsel at the CCCA/Rotmans In House Counsel Certification Program. In 2018, he was recognized as Canada’s Outstanding General Counsel.

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