This article is by Mark Rogers, the founder and chief executive of BoardProspects.com.
President George Washington once said, “Associate with men of good quality if you esteem your own reputation; for it is better to be alone than in bad company.” More than 200 years later, these words of wisdom offer a moment of contemplation for the board of trustees of Natixis Global Asset Management, one of the largest investment management firms in the world. The Boston Globe recently disclosed that Natixis entered into a seven-figure settlement in 2011 after allegations of sexual harassment and discrimination were made by a senior saleswomen against the company’s well-known chief executive, John Hailer. Unfortunately, such allegations are not uncommon in today’s corporate world (and it is important to point out that Natixis denied the allegations). What is exceptional in this case is that Natixis’ trustees were completely in the dark about the matter, including the settlement.
Natixis is not unlike many corporations in that it is a subsidiary of a much larger corporation. Often the trustees of a subsidiary are merely a legal formality and have little to no input on the company’s strategic direction or operations. This certainly appears to be the case with Natixis, which is owned and controlled by Paris-based Groupe BPCE. In responding to the Boston Globe’s investigation, the spokesperson for Natixis stated that the corporate board of Groupe BPCE was “aware of this matter throughout” but had no obligation to inform Natixis’ trustees. This is likely an accurate statement in accordance with the corporate bylaws. Natixis, however, isn’t exactly your typical subsidiary entity. It is the thirteenth largest investment management firm in the world, with more than $931 billion under management and 3,400 employees—not exactly a mom and pop shop.
In response to an inquiry from the Boston Globe, Sandra Moose, the chair of Natixis’ board, stated that she was not surprised that the trustees were not informed of the Hailer matter, because it wasn’t part of their “duty”—leaving one to wonder exactly what is the duty that earns Natixis' trustees between $180,000 and $265,000 a year for part-time work. Let’s assume for a moment that per the corporate bylaws the legal responsibility for this issue is indeed strictly within the purview of the corporate board at Groupe BPCE. Wouldn’t you as a board member of Groupe BPCE want the trustees of the subsidiary entity to at least be aware of the allegations, and perhaps even ask if they knew of any claims of inappropriate behavior on the part of their CEO? More important, wouldn’t you as a trustee of Natixis want to know of any such allegations and related settlement?
Corporate governance has come a long way since the days of Enron and Arthur Andersen, particularly in terms of disclosure and transparency. Perhaps these principles have not yet fully evolved at Groupe BPCE. Or maybe this is simply an issue of an internal breakdown in corporate communications between the parent and subsidiary entity. Regardless of the reason, Natixis’ trustees should absolutely have been apprised of this matter concurrent with the disclosure to Groupe BPCE’s board.
Any conscientious board member will tell you that the due diligence associated with determining whether or not to accept a board appointment should involve an analysis of the potential liability exposure one may face. This usually involves an examination of the corporation’s directors and officers insurance policy to determine whether there is appropriate coverage. There is of course no such insurance policy that covers reputational risk, as must be all too clear to Natixis’ trustees at the moment.
Natixis’ trustees now have a pretty good understanding of where they stand in the eyes of Groupe BPCE’s board. As a result they must grapple with concern about what else Groupe BPCE’s corporate board may be failing to disclose to them. They should not in any way face criticism for being kept out of the Hailer settlement. However, they are now on notice and are certainly subject to public scrutiny if another incident should arise at Natixis in which they are intentionally kept in the dark.
The only course of action that Natixis’ trustees can take to minimize their reputational risk is immediate resignation from the board. Whether or not they realize it yet, their reputation is far more important than the compensation and prestige they get from their board service.
