My venture company has funded a startup medical-device company, and I sit on the board of directors. One of my close friends (our families have vacationed together) is the vice president of regulatory. My friend is a highly respected regulatory expert, well known to the Food and Drug Administration (FDA). Reporting to him is a woman, the director of clinical affairs. This is a key position for the company since this person develops and implements the strategy necessary for the FDA to approve the product for sale.
This company has been growing rapidly with good demand for the products.
The VP of human resources came to me recently with disturbing news. My friend and the director of clinical affairs had an affair, and the woman is now unhappy and is talking about pressing sexual harassment charges. I have met with both parties to get the facts, and neither appears to be more at fault than the other. These are very critical positions for our small company. What would you recommend that I do?
A Venture Capitalist
Although they cannot be neatly separated, there are ethical, legal, and managerial issues involved in your situation. Any course of action you take will likely increase risk to your investors in one form or another.
In my estimation, the primary ethical issues seem to be (1) Whether an actual harassment occurred (vs. a truly consensual affair); (2) If harassment did occur, how to make the aggrieved party whole again; (3) Your duties to investors as a member of your venture capital firm and as a board member of the startup company.
As you state, you have already spoken to both parties. While both seem to be equally at fault, the director of clinical affairs may have a stronger ethical (and legal) position because the relationship occurred in the context of a differential in power (a direct supervisory relationship).
In terms of action, the two should obviously not be in a direct supervisory relationship any longer. Of course, this is tricky as removing the director of clinical affairs could be quite unfair (and have legal ramifications down the road). As in the case of almost any situation involving threatened legal action, it would be best to try to find out what would satisfy the aggrieved party prior to the situation coming to formal legal action.
In terms of managing risk, I can understand your reliance on these two individuals for the viability of the business. It is not uncommon for a small organization to find itself “held hostage” by a few critical employees. However, it might be wise to rethink your dependence on one or both of these employees. The vice president of regulatory should especially know better than to get involved with another employee, especially someone in a direct-reporting relationship. Can you still say that you trust his overall judgment?
This is also a good time to develop an overall crisis/risk management plan. An affair or sexual harassment are just two of the many personnel issues that could jeopardize an organization’s ability to succeed. While it is impossible to be prepared for all contingencies that arise, this is a good wake-up call to try to plan ahead.
If you have an ethical dilemma at your workplace,
email Ethics at Work (firstname.lastname@example.org).
We will publish some of these in Ethix along with our diagnosis.