Some incidents are teaching tools that give and keep on giving. Previous columns focused on the events that eventually cost Mark Hurd his job as CEO of Hewlett Packard. Hurd apparently developed a personal relationship with a female independent contractor. If HP's Board is to be believed, Hurd didn't sexually harass her, but he did try to cover up the relationship by not listing her as being present at dinners and other events on his expense reports. It seems worth asking whether things might have gone better for Mr. Hurd if HP had in place a non-fraternization policy and its CEO had acted as if it applied to him.

Non-fraternization policies prohibit executives and managers from becoming romantically involved with anyone they supervise, or whose terms and conditions of employment they could influence. The Hurd situation is a reminder that any such policy should also cover contractors whose retention the executive can influence. The policy should define what "fraternization" is prohibited - dating, romantic involvement, sexual relations and the exchange of affections - where there is a direct or indirect reporting relationship, or where the power disparity between the employees is huge, such as when a C-Suite executive is involved.

To ensure that the policy is not just viewed as window dressing, it should apply at all management levels. In fact, it's needed even more at higher levels in the corporate hierarchy. Why? With such extreme power disparity, it will be next to impossible to successfully argue that the relationship was completely consensual if the lower-ranking employee later alleges there was direct or implicit coercion.

These policies are not "no dating at the office" rules, which are all but impossible to enforce, generally resented and ridiculed by employees as overly intrusive, and likely lead employees who are dating or even merely socially active - particularly same-sex couples and those who are just plain attempting to keep their relationship secret - to become dishonest and attempt to hide what could be an otherwise legitimate relationship. Focusing on reporting and power relationships will likely encourage work force acceptance of the policy and give the employer reasonable protection from claims of sexual harassment.

What should be done if, despite the policy, a prohibited relationship develops? Even if it's just rumored, the safest course for the employer is not to let it pass, but to question the higher-ranking member of the couple. This may be an embarrassing conversation, but far less embarrassing than a public scandal, and the company will have a better chance of shielding itself from liability if it knows up front what's going on.

The potential damage is not limited to sexual harassment claims. Employee morale will likely be eroded if it's perceived in the workplace that the lower-ranked employee is receiving plum assignments and undeservedly positive job appraisals from the admiring or romantically-involved boss. And when the relationship ends (as most do) and the boss no longer views the subordinate's performance through romantic glasses, the subordinate is likely to think that what she perceives as suddenly less favorable treatment is in fact retaliation for the end of the relationship. An interesting twist is that courts generally hold that a supervisor's more favorable treatment of a paramour is not prohibited by the discrimination laws because the disparity of treatment is based not on gender, but romantic involvement.

A well-drafted non-fraternization policy will require employees to report the development of a relationship covered by the policy at its outset and will reserve to the employer the choice of remedy. The two employees could be separated by a job transfer if the organization is large enough. One employee could even be discharged (preferably the higher-ranked one, since a policy of adversely treating the lower-ranked employee could well have a disparate impact on females). Or the employees could be asked to sign what's been variously called a "Consensual Relationship Agreement" or a "Love Contract." This is a document signed by both employees in which they attest that the relationship is completely consensual; that neither the law nor company anti-harassment policies have been violated; and that disputes over any workplace impact of the relationship (or its termination) will be resolved by private arbitration rather than public litigation. If Mr. Hurd and his friend had been confronted at the onset of their relationship, Gloria Allred might never have had a chance to garner more headlines by denying there had been any sex but still threatening a lawsuit.

Before you rush out and Google "Love Contract" to find an example you could implement at your company, consider that an employee can always claim he or she felt pressure to sign that document as well. They're by no means a "silver bullet" that inevitably immunizes a company from sexual harassment litigation or a public relations disaster. In fact, it's not hard to imagine how such a document could itself be prominently featured in the Tabloids or similar websites. They should probably be reserved for very special cases, such as where both employees are deemed all but indispensible in their current positions.