Intel’s CEO Krzanich Resigns: A warning for boards
“Intel will continue to operate responsibly and with the integrity and transparency that has defined our culture.”
Those words came from Intel Corp.’s CEO Brian Krzanich in what would turn out to be his last letter in an Intel annual report.
Krzanich resigned Thursday after an internal investigation found he had a relationship with an employee, something that’s against the tech giant’s non-fraternization policy. (Intel’s chief financial officer Robert Swan has been named interim chief executive officer by the board.)
There are few details beyond the official press release, but it appears the board didn’t know about the affair.
Intel was recently informed that Mr. Krzanich had a past consensual relationship with an Intel employee. An ongoing investigation by internal and external counsel has confirmed a violation of Intel’s non-fraternization policy, which applies to all managers. Given the expectation that all employees will respect Intel’s values and adhere to the company’s code of conduct, the board has accepted Mr. Krzanich’s resignation.
It turns out executives aren’t always forthcoming when it comes to their personal indiscretions.
A Stanford study examined CEO misbehavior that got extensive media attention and found 34% of the incidents involved reports of a CEO lying to the board or shareholders over personal matters — such as a drunken driving offense, an undisclosed criminal record or falsification of credentials.
And 21% involved a sexual affair or relations with a subordinate, contractor or consultant, the report found.
The authors pointed out that “in many cases, the board of directors is not the first within an organization to learn of CEO misbehavior and will respond only after reports of misconduct become widespread. However, mechanisms exist for the board to detect misconduct at earlier stages, including confidential workplace surveys, third-party websites (such as GlassDoor), and independent social media listening tools.”
It’s unclear what actually happened in the Intel case, but what is certain is that many experts were surprised by the news.
Patricia Lenkov, president and founder of Agility Executive Search, who specializes in C-Suite and board placements, calls the events “amazing.” Intel’s board, she says, “is a good board that is filled with people who haven't been there forever.” Long-tenured directors, Lenkov says, might have been “a bit less independent.”
But what could the board have done before this happened?
“There are several best practices that can mitigate these types of circumstances,” says John Cannon, chair of Stradling’s litigation practice group, who advises boards of directors and represents public and private companies. One move is to review company policies to be sure they are clear and communicated.
“The adoption of reasonable policies that are implemented by management is a given. The adoption of a rigid policy, on any issue, has benefits and detriments. The benefits to this policy are a strong tone at the top regarding harassment and discrimination of subordinates. The downside to a rigid policy is the lack or discretion involved in a 'one-size-fits-all’ approach and harsh unintended results that can harm the business. What the board should really be asking itself is whether the policy involved here is the right policy to protect the interests of shareholders.
“The board’s active involvement in independently investigating the implementation of policies by management can provide an early warning system.”
“Once apprised of [a policy violation] issue,” Cannon says, “board members must complete a thorough investigation and implement reasonable consequences that considers the best interests of the shareholders.”
Lenkov adds, “What is also interesting in this situation, as it is in so many cases, is that as CEO, Krzanich did not have a successor.”
Having a successor in the wings, she explains, “is a huge part of any board’s and CEO’s responsibility. Yet so many times they are without a successor and then scramble and pay a lot of money for a search and also to recruit someone from the outside. I imagine the search will include some internal candidates as well as external, but it can take months to make the decision — and in the meantime, a company without a permanent leader does suffer some destabilization.”
To provide that stability the Intel release said the board had “a robust succession planning process in place and has begun a search for a permanent CEO, including both internal and external candidates. The board will retain a leading executive search firm to assist in the process.”