🔒 Flirting CEOs are finally getting fired. Good.

In recent years, boards have become less tolerant of CEOs engaging in office relationships, viewing them as potential indicators of broader ethical issues. The recent firing of CEO Alan Shaw by Norfolk Southern over a consensual affair with a subordinate is an example of this shift.

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By Beth Kowitt

Having a romantic relationship with an employee used to not be a criminal offense for CEOs. ___STEADY_PAYWALL___ They would be fired for embezzling money to fuel the affair, or for not fully disclosing the details to the board when they were finally caught. But it was rarely the relationship itself that got them fired – if they got fired at all.

It was part of the trade-off that company boards seemed willing to make. If you wanted a charismatic and creative CEO, you thought you had to accept the boundary-pushing, big ego, aversion to rules – and the occasional indiscretion – that could come with it.

But in recent years, corporate America’s boardrooms have recalculated whether to view these kinds of ethical lapses as a warning of bigger problems. For the final point of evidence, look to Norfolk Southern Corp. Last month, the railroad ousted then-CEO Alan Shaw, saying he violated its policies by maintaining a consensual relationship with the company’s chief legal officer, Nabanita Nag. (Nag was also fired.)

Norfolk’s strict, non-permissive attitude toward office relationships with subordinates shows how seriously companies have come to take this type of misconduct by CEOs. Despite the backlash against #MeToo, this is an area where the movement’s impact has lingered: boards are now grappling with the question of what consent really means when there is an innate balance of power.

But it’s not just the cultural shift that’s driving the crackdown on executive bickering. Boards have a strong business case as researchers find mounting evidence pointing to a link between problematic personal and professional behavior. “We know that boards see these types of relationships, especially extramarital relationships, as signs that organizational operations are not running smoothly,” said Amy Nicole Baker, a professor of psychology at the University of New Haven who studies workplace relationships. “It’s not necessarily about values. This is a signal to the board that there may be other problems.” (In Norfolk’s case, Shaw was married.)

The 2015 Ashley Madison hack – the site’s tagline is “Life is short. Have an Affair” – gave academics a wealth of data to investigate the link between cheating at home and at work. One study found that companies led by the 47 CEOs and 48 CFOs who paid Ashley Madison users (97% of whom were married) were twice as likely to have a financial misstatement or be involved in a class action lawsuit.

A second group of researchers made a similar finding: that the number of employees who used company emails to register for the site was linked to unethical behavior at the company level. But their paper contained another discovery that illustrates, as they write, why it is so “difficult to develop a perfect corporate culture because of the potential trade-offs between employee creativity, risk-taking and integrity”: those same companies that are more Employing Ashley Madison users were also the most innovative organizations as measured by R&D and patent activity.

This paradox nicely illustrates the challenge that boards and HR departments face. If a company hires only very careful people, it is unlikely to produce any cases of misconduct – but also no innovation. “We have to recognize that you don’t recognize a set of inconsistent traits in the same person,” says Alison Taylor, a business school professor at New York University and author of Higher ground: how companies can do the right thing in a turbulent world. “We want conflicting things from the same people.” Organizational psychologist Tomas Chamorro-Premuzic, Chief Innovation Officer at ManpowerGroup, calls these employees who find themselves at the intersection of entrepreneurial talent and counterproductive work behavior “toxic assets” in the war for talent.

There are ways companies can ensure they get more of the assets and less of the toxins. Taylor referred me to an article on “cultures of compliance” by Georgetown Law professor Donald Langevoort, who lays out some ideas for ensuring that the business world’s reverence for power and competitiveness doesn’t turn into misconduct. Among them: Bosses shouldn’t set unreasonable goals, otherwise employees “will view it as a license to cheat,” he writes. And don’t let ethical workers ignore the more “ethical plastics,” or the “lucky risk-takers who don’t get caught, and who will therefore prove to be exceptionally skilled and productive.”

At CEO level, boards must pay attention to how an executive reaches the top. As Langevoort writes, “The paths to power must be another item on the compliance list.” This shows that often the most effective CEOs are those who never aspired to the role. They are focused on the work because they enjoy it, not because their ultimate goal is to do whatever it takes to reach the top of the corporate ladder.

In Norfolk, Shaw attempted to turn around the railroad after last year’s devastating derailment in East Palestine, Ohio. The 30-year business veteran had recently prevailed over activist investor Ancora, who had argued he wasn’t ruthless enough and wanted him out. Shaw was under such intense scrutiny, had so much to lose, and yet he still decided to take on the personal and professional risk of an extramarital affair with a colleague. That likely left the board wondering what other boundaries he might be willing to cross — a risk it wasn’t willing to take.

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