Once upon a time, word was put out that the chief executive of a major UK financial services company was about to be exposed in a British tabloid newspaper for having an affair. The CEO was duly named as Andrew Moss, then chief executive of insurance group Aviva, but before he was outed no fewer than three chief executives of major British companies called their compliance departments to warn that it could be them.
This story is not apocryphal. CEO sex scandals are one of the risks that any self-respecting corporate communications executive should always have a plan for.
Yet what are the rules in such matters? Do stakeholders actually care? Can communicators do anything to mitigate or repair damage caused internally by such indiscretions? And does it matter in the long-term, once the tabloid newspapers have turned their attention onto somebody else?
The latest test case is Lloyds Banking Group and its chief executive Antonio Horta-Osorio, about whom revelations were published in The Sun last month under the headline Lloyds Bonk. The newspaper printed pictures of Horta-Osorio with Dr Wendy Piatt, a former adviser to former British Prime Minister Tony Blair, in Singapore in June where they were both on business trips there and claimed that the couple had enjoyed a four-year affair. It also reported that Horta-Osorio had spent nearly £4,000 at the hotel, including spa treatments.
Both Lloyds and the Russell Group of elite British universities, of which Piatt is director-general, asserted that the executives had claimed appropriate expenses for the trip and that therefore neither had broken any terms of their employment.
Two weeks later when Horta-Osorio, 52, returned to work after annual leave, he issued a letter to Lloyds’ 75,000 staff, expressing his ‘deep regret’ for ‘adverse publicity’ over the Singapore trip and ‘damage’ done to the group’s reputation. Horta-Osorio did not refer directly to the allegations, describing the reports as ‘speculation’, noting that his personal life is ‘obviously a private matter’ and stressing that he paid for his personal expenses whilst away on business.
Neither did the chief executive, who is married with three children and lists cage-diving with sharks as one of his pastimes, admit an affair or apologise overtly for one.
He stated: ‘I have been a strong advocate of expecting the highest professional standards from everyone at the bank and that includes me. I will continue to strive to meet those standards. Having the highest professional standards raises the bar against which we are judged and as I have always said, we must recognise that mistakes will be made. ‘I don’t expect anyone to get everything right all the time. The important point being how we learn from those mistakes and the decisions and actions we take afterward.’
Such a letter from a chief executive is extremely rare in the UK. Andrew Moss never wrote one about his affair, instead braving things out and issuing a warning through his solicitor that he wanted no more information about his private life to be exposed and was prepared to go to court over the matter.
Neither did Royal Bank of Scotland’s former chief executive Fred Goodwin apologise for indiscretions including an affair and a wildly risky acquisitions spree that ended up with the company being nationalised. What is different about the Horta-Osorio case?
There are several possible explanations. Firstly, Lloyds is still partly-owned by the UK Government, whose select committees take a dim view of personal indiscretions. More significantly, Horta-Osorio effectively staked his future on his personal ethics three years ago by introduced a new group code of personal responsibility. The code urges urged staff to ‘do the right thing’ and to ‘lead by example,’ instructing staff to ask themselves before embarking on any course of action if they would be happy to tell colleagues, family and friends about it and whether Lloyds would be comfortable if their actions were reported externally.
‘Horta-Osorio is a super-visible role model who not so long ago oversaw the issue of ethical guidelines for everyone,’ says John Smythe, co-founder of employee engagement consultancy Engage For Change. ‘He has transgressed those and absolutely had to put his hand up. If he had said nothing, everyone would have made up their own version of the story.’
A communicator with inside knowledge of the situation agrees. ‘He had to write this letter. It was what Antonio wanted to do, it was very much aimed at his internal audience and I’m not sure what the alternative was, given his previous announcements,’ he explains.
‘He had set out high standards of behaviour. You have to ask the question: how would it have looked if he had not done that? Antonio had been very specific in Lloyds’ recovery about the importance of employee behaviour. That’s the difference between him and other CEOs in similar situations.’
John Waples, senior managing director and UK head of strategic communications at FTI Consulting, views the case more sceptically. ‘There’s obviously massive resentment inside Horta-Osorio’s circle of support staff who are seeing quite a lifestyle being enacted and have leaked this,’ he says. ‘He’s not carrying his staff with him and needs to get some loyal people around him. Do staff care? I suspect if you worked in a Lloyds branch in Woking or Wolverhampton and heard stories of what the boss was getting up to with his mistress in Shanghai you might be a bit disappointed. But do bank branch managers apologise to their staff when they have an affair? No they don’t’.
The issue, argues Isabel Collins, founder of consultancy Belonging Space, is that transgressions at the very top of businesses have the ability to set bad precedents and lose the hearts and minds of staff. ‘Employees do care if the CEO has an affair, and it matters a lot. It’s a question of leadership,’ she says. ‘Leaders don’t have to be saints or whiter than white but they should uphold the same standards that they set for everybody. It also matters for the esteem, respect and motivation and pride aspects of employee engagement and from an ethical perspective, it’s about risk management. If your leaders say one thing and do another, the wider the gap, the bigger the ethical risk.’
Even if this is the case, however, communicators are still split on whether leaders need to effectively apologise to staff. ‘Normally, I wouldn’t advise it unless the issue has damaged the business, which it hasn’t in this case,’ says Tony Langham, chief executive of communications agency Lansons.
James Acheson-Gray, managing director in London for global communications agency APCO Worldwide, disagrees. ‘He had to say something because it’s a significant media issue,’ he argues ‘It was having an effect on the bank and he had to confront it in some way. He attempted to draw a line under it.’
Thom Lant, the former director of marketing and communications at the Nasdaq stock market, believes an apology would only be necessary if an affair was carried out during company business.
Another head of a major public relations agency is insistent that CEO letters to staff to explain personal affairs are not necessary. ‘Staff care more than they should about this stuff. The problem is that people love this kind of thing so it gets talked about but I’m not sure what this letter will achieve,’ he says. ‘I think you only apologise to staff if you’re trying to keep your job and think that you have to do that in order to do so. I personally don’t believe it is appropriate to apologise to staff for what you do in your personal life.’
John Drummond, chairman of strategic and creative communications consultancy Corporate Culture, also struggles with the ‘difficult trade-off’ between personal privacy and professional responsibility. Drummond believes all individuals, whether leaders or staff, have the right to operate their own code of ethics in their personal relationships.
‘If a CEO believes he has made an error of integrity he should apologise for the event and if he believes he has damaged the reputation of the business, he should apologise for that damage, but that’s not the same as apologising for the behaviour,’ he says.
‘We all make mistakes. If we are sincere in discussing them in public when there is just cause, then I think that can enhance reputation. I don’t believe we should expect or demand this kind of public apology. And I don’t believe we should ask others to have higher standards than we have of ourselves.’
There are other issues with the Horta-Osorio story. The delay in writing the letter kept the story running, enabling The Sun to publish a follow-up story, claiming that he also met Piatt on an earlier work trip to San Francisco in November 2015. Smythe, meanwhile, takes issue with the letter’s wording.
‘I found his statement a bit too PR’d,’ he complains. ‘I’m guessing it did not come from the heart – most likely the communications people and lawyers, which may have weakened the impact.’
Then there’s the matter of what shareholders think. Investors, says Waples, also tend to let affairs go unless there has been a financial breach as well as an alleged ethical one. ‘Why did he get away with it?’ he asks. ‘Probably because he’s seen to be doing a great job, there’s no natural successor inside the bank and shareholders didn’t want to make a big deal of it. And his wife and partner kept quiet.’
Acheson-Gray agrees. ‘Had the bank’s performance been terrible, I think it would have been harder to put out that kind of statement,’ he says. ‘But he [‘Horta-Osorio] was able to point to a relatively strong financial situation and claim that his activity had not had any negative impact on the bank.’ So how should communicators deal with an errant chief executive and react to its public disclosure?
‘As well as dealing with how you message it within the organisation, somebody needs to talk to the chief executive and my advice would be not to do that on your own,’ says Collins. ‘Don’t expose yourself. You need to find someone very senior to do this, which might mean jumping to the chairman or the human resources director. This sort of thing does often land in corporate communications because it has to deal with the front line of reaction.’
What happens next ? There will inevitably be more chief executive sex scandals but has Horta-Osorio created a precedent for how other CEOs should act when they are metaphorically caught with their trousers down? Probably not, though social media may be upping the ante.
‘It has made things harder for CEOs in such cases,’ says Acheson-Gray. ‘Their business life now lives on social media even when they are not in the office. So there’s an expectation that they need to be much more responsive than they have been before.’
This is an issue that’s unlikely to go away.