By: Tom Dunlap [3/2/22]

Your company’s founder has been at the helm for years, and everything seems to be going well – they’ve worked hard, developed a great team, and the future looks bright.

Then it happens.

A tweet, an email, comments in an interview, or a private conversation that gets leaked – it could be anything, but the bottom line is they said something erratic, and maybe even horrific – and people are noticing.

It’s an uncomfortable scenario, but it does happen from time to time, and unfortunately, it’s usually ugly and can have severe reputation consequences. Earlier this year, cloud-based software provider Entrata’s founder and CEO sent a company-wide anti-Semitic email, and several years ago, in a more public incident, the founder of Papa John’s was forced out after making racist remarks on a conference call, forcing the boards of each to force out the founders.

So, what should you do if your company finds itself in this circumstance? Below are some of the essential pieces of responding to a leadership and reputation crisis.

Communicate, communicate, communicate

A story like this can – and will – spread in minutes. As soon as it gets to employees, investors, or the public, it will immediately call into question the company’s leadership and do reputational damage.

Responding as fast as possible is the best way to control the narrative to the degree that the company can. To the best of its ability, the company should try and get in touch with the person who made the comments, restrict their media and social exposure, and work alongside legal counsel and communications professionals to make them understand the gravity of the situation and make a statement of apology both internally and externally that can be spread via social and traditional media.

In the unfortunate scenario in which they refuse, the company should issue its own statement – typically via the chair of the Board, co-founder, or another leadership figure – disavowing what was said or done and apologizing to anyone affected. This statement will also serve as a pivot point for the company to begin distancing itself from the founder.

Next steps and consequences

There is no perfect formula for deciding the fate of someone who has made such comments, but the one constant is to provide distance between the company and the founder. People need to know that the person might be a bigot, but the company is not.

Each corporate board will make its own decisions based on the circumstances – what was said, degree of internal and external backlash, and what the person’s background and status are. While consulting legal counsel on the full range of options, additional steps could range from keeping the founder in a less public role, asking them to leave their position at the company but allowing them to keep their financial interests, or telling them to leave the company and divest altogether.

The outcome will ultimately depend on the board’s opinion, the founder’s share in the company, the value of keeping the founder, whether they breached their contractual obligations, and what legal powers the board has and is willing to execute.

Finances

If the comments were very public, likely, anything short of the total separation and divestment of the founder would not be good enough for most critics. However, letting a founder and executive go is more complicated than that. If the person understands what they did and that the company must act to save its reputation, a mutual parting of ways can occur, including the founder willingly submitting their resignation and agreeing to specific financial terms.

Unwilling founders are more challenging to manage. In most cases, the board can still fire them for cause, which can include no severance, complete divestment, and return of performance bonuses (the clawback), but companies should prepare for a legal battle to do so.

Legal

Any separation will have a few legal hurdles, but messy ones, as mentioned earlier, can have many. No matter how amicable the founder is, the company should bring in outside counsel to guide them on best practices through the entire process and to lean on in the event of litigation over the separation. Litigation can span from defamation to fiduciary responsibilities and beyond, so proactive preparation is critical.

Contacting an experienced litigation attorney would be necessary to assist in the best way to move forward. Any of our litigation attorneys at Dunlap Bennett & Ludwig has significant experience litigating and resolving libel and slander disputes in many contexts and industries.

Moving forward 

Showing that a company can move past its founder and still be successful is equally as crucial as ousting a founder who made disparaging remarks in the first place. Hopefully, the board and senior leadership have a succession plan in place that can be executed. After a new or interim leader assumes the executive role, the company must show employees, investors, and the public that it is still delivering the same great service or product.

Seeking public relations counsel is a great way to do this. Good firms can place profiles of the new executive in publications, create content about the company’s new chapter, and drive a strong narrative about the company being in better shape than ever. They can also help with proactive events that show that the company is not defined by the actions of one person – for example, hosting industry events focusing on diversity and inclusion if the former founder made bigoted remarks.

It’s a strategy that can be tremendously helpful. If done well, over months and years, it can mitigate any damage to reputation or even the memory that the event ever happened.

If you’re in the midst of a reputation crisis that’s the result of a leader’s comments or simply scenario planning to be prepared if it does happen, our team is available to offer advice and counsel to you and your company to get through the most challenging days and come out better on the far side.

At Dunlap Bennett & Ludwig, we understand that protecting your business is an essential element of success. Learn more about how we can provide powerful legal representation in litigation here or how our team can assist with defamation cases here. To learn more about Dunlap Bennett & Ludwig and how we assist you, contact us by calling 800-747-9354 or emailing clientservices@dbllawyers.com.


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Posted in: Litigation & Disputes

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