Protecting Your Corporate Reputation from Collateral Damage

By Renee Mielnicki, Esq.

By now, we have probably all heard about the scandal involving Donald Sterling, the owner of the Los Angeles Clippers. If you haven’t, here’s a quick recap. V. Stiviano, a young woman whose exact relationship with Sterling is not known, tape recorded Sterling in private without his knowledge while he was making racist comments about African Americans. In particular, he was recorded telling Stiviano not to bring “any black friends” to Clippers games and not to post any pictures of herself with African Americans, including NBA superstar Magic Johnson, on her Instagram account. This sent shock waves not only through the public, but also through the NBA since approximately 78% of its players are African American. Within days of release of this recording, the NBA Commissioner, Adam Silver, banned Sterling from the league for life and issued him a $2.5 million dollar fine, a good decision since companies such as State Farm, Mercedes Benz and CarMax pulled their marketing sponsorships of the Clippers due to Sterling’s racially insensitive comments. Moreover, Silver is trying to convince the NBA Board of Governors to force Sterling to sell the Clippers.

We’ve already seen these types of scandals in many forms and corporate industries. If you live anywhere around Pittsburgh, PA, you are also probably familiar with the scandal involving Highmark’s former CEO, Kenneth Melani, which cost him his job and his $4.5 million dollars a year salary. Melani, who engaged in a consensual affair with a Highmark employee, faced criminal charges after he went to the home of his mistresses’ husband and physically assaulted him.

Or, how about Tiger Woods? The golf champion who seemed to have it all until his sex-addiction/cheating scandal rocked America when that story broke. Not only did it cost him his marriage and an estimated $100 million divorce settlement, but he also lost an estimated $20 million dollars in endorsements from Gillette, AT & T, General Motors and Gatorade when they refused to associate with him after his cheating scandal broke.

What does this mean for employers, both business-wise and in the employment law context? These examples, while not illegal under any federal or state law, cause massive collateral damage to your corporate reputation. Even though you cannot be held liable in a court of law for actions such as these, a verdict may be swift and expensive in the court of public opinion.

In today’s competitive economy, companies must invest extravagant amounts of time and money in an effort to create a favorable image and gain the trust of their customers. It is an edge you cannot afford to lose. Having CEOs or other top executives who engage in scandalous misdeeds can ruin in moments what it took your company years to build. For every business there are risks and this appears to be one of the newest and biggest.

However, this problem is not without a solution. Preservation of your corporate reputation and integrity begins with your hiring process. A thorough background check of all employees, including top executives, is essential. For these employees in particular, you should consider the proactive step of creating employment contracts that have a code of conduct or morals clause that seeks to prevent this type of behavior. You can also implement policies to this effect for your non-executive employees to follow. Of course, it’s also important to quickly part ways with employees who engage in scandalous behavior to minimize the damage that may come from continuing to associate with them.

If you are a follower of our blog, you may be familiar with the many human resources posts we have already published on Title VII and the workplace troubles that develop when this law is violated. Title VII, a federal law, makes it illegal to discriminate or harass an employee at work on the basis of race, color, national origin, religion or sex. Employment lawyers and HR Professionals across American have been preaching for years to employers about this law and stressing the importance of preventing violations within their businesses. However, today, it seems that the newest, scariest and potentially most damaging liability for employers may be those that are not illegal, but rather just plain unprofessional. Moreover, they are not even occurring in the workplace. Perhaps it’s true that politics and public opinion can cost us much more to defend than an actual lawsuit. Therefore, employers need to be aware of this issue and also train employees accordingly. If employees are aware at the time of hire that this type of conduct, while not illegal, will not be tolerated, this may act as deterrent and reduce the risk of potential embarrassing and damaging situations from occurring.

The Sterling scandal also reminds us about issues surrounding audio recordings. In California, tape recording verbal statements is illegal under its state Wiretap laws unless the consent of both parties to the conversation is obtained prior to the initiation of the recording. Obviously, Sterling didn’t know Stiviano was tape recording his verbal statement in private, so it will be interesting to see if Stiviano will be charged for tape recording Sterling’s statements without his consent. But, it does serve as a reminder to those of us in states such as California, Florida, Maryland and Pennsylvania that it is illegal to do so unless you have obtained the consent of both parties beforehand. Wiretap laws vary from state to state. In states such as Ohio, New York and North Carolina, as well as a majority of others, only one party’s consent is necessary. It’s safest to check your state law before you decide to tape record a conversation with an employee, or anyone else for that matter, without first getting their consent to the recording.

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