The problem
In a tale that has gripped corporate America, Dow Chemical this month sacked two directors accused of holding "unauthorised" discussions with a private equity consortium about a possible bid for the industrial group. Pedro Reinhard, a board member, and Romeo Kreinberg, an executive vice-president, were dismissed on the grounds that they had been discussing a deal to buy the company without the board's agreement. The pair deny any wrongdoing and are threatening to take legal action.
The episode raises questions for managers and board members. When should executives or board members inform the board or chief executive about any discussions they have had with private equity? How is it possible to judge the point at which casual conversations turn into negotiations? And is strong action always the right answer, particularly when a potential deal may benefit shareholders?
The advice
Alan Middleton, CEO-elect, PA Consulting Group
If the individuals' actions fail the "red face test" they are inappropriate. Even if the executives are important to your business, when they put their own interests first you are better off without them.
Doing nothing is not an option. When found out (and you will be) you will suffer shareholder suits and a rise in staff cynicism. If you let them get away with their actions then others will use your decision against you when they are confronted.
Deal with the situation quickly, accepting the (likely) employee suits from dismissed staff and short-term negative publicity. In the long term, your decisive action will make a strong statement about what you and your company stand for: honesty, ethical behaviour and a refusal to tolerate lapses from those standards.
