Lessons from the Penn State scandal

Concealing employee misdeeds could result in big consequences.

Jerry Sandusky

The sex abuse scandal that has embroiled Pennsylvania State University presents no shortage of troubling story lines. Most horrific, of course, are the central allegations that former assistant football coach Jerry Sandusky sexually abused eight or more underage boys over at least two decades. But just as discomfiting from an organizational perspective are the reports that school officials knew of the abuse allegations and did not act.

The same grand jury investigation that led to Sandusky’s indictment on 40 charges of child molestation also resulted in perjury charges for high-ranking administrators. The ensuing controversy culminated in the ouster of storied football coach Joe Paterno, as well as the forced resignation of University President Graham Spanier.

Although many facts are disputed, assistant coach Mike McQueary testified before the grand jury that he witnessed Sandusky sexually assaulting a boy in the football building’s shower in March 2002 and notified Paterno the next day. According to testimony, Paterno passed on the information to Athletic Director Tim Curley and Senior Vice President for Finance and Business Gary Schultz, who took little substantive action against Sandusky. The grand jury found McQueary’s testimony highly credible. Curley and Schultz, who downplayed McQueary’s account, were charged with grand jury perjury and failure to report suspected child abuse.

It will likely take years for the Penn State cases to reach resolution, but the indictments paint a picture of unfortunate behavior patterns that are all too familiar to employment law experts. Individuals and institutions, they say, have a propensity to look the other way when uncomfortable allegations arise, particularly when they occur at the top of the org chart.

“There’s a natural tendency for people to avoid conflict,” says Chad Shultz, a partner at the labor and employment firm Ford & Harrison. “They might try to convince themselves that they really didn’t see something that they need to get involved in. But in situations like this there are definitely negative ramifications for them individually and for the employer when they fail to take action.”

Teaching Case

Thankfully, most companies never confront employee behavior as toxic as the Sandusky allegations, but because the scandal has captured the nation’s attention, it presents a powerful object lesson.

“It’s got people—and not just lawyers—talking about what to do if confronted with a situation like that,” Shultz says. “It forces them to go through the thought process. Hopefully the next person who faces something like this, even if it’s a less egregious situation, will be better equipped to react appropriately.”

Illegal behavior in the workplace runs the gamut. Employment lawyers tell tales of menacing, drug crimes, even firearms in the office, but sexual misconduct—from harassment to assault—is perhaps the most prominent and prevalent.

When complaints arise at lower levels of an organization, the process of addressing them is usually straightforward: HR staff conducts an investigation and determines whether employee discipline, termination or law enforcement notification is warranted or legally required. If the problem is in the corporate suite, however, it often falls to the general counsel to handle the very difficult situation.

Such cases are not uncommon, and they are often tangled with inappropriate business conduct. In 2010, Hewlett-Packard Co. CEO Mark Hurd resigned after an investigation into sexual harassment allegations made by a contractor turned up expense account irregularities. The controversy led to a shareholder lawsuit. In 2006, Wal-Mart Stores Inc. ousted top marketing executive Julie Roehm amid allegations she accepted gifts from advertising vendors and carried on an improper sexual relationship with a subordinate.

Anytime such allegations arise in the executive ranks, counsel must take swift action to avoid any secondary liability.

“If you don’t take rapid investigative action and make appropriate remedial or disciplinary steps, then you’re increasing risk to the institution,” says Frederick Baron, who leads the labor and employment practice at Cooley. “You’re taking what may be a case of individual misconduct or perhaps individual criminal conduct, and adding institutional exposure for failure to act.”

Growing Exposure

Over the past several decades, courts have steadily expanded the remedies available to employees who are victimized by misconduct in the workplace, whether criminal or civil. In many cases, organizations that don’t take effective action or try to cover up violations face more severe penalties than the individual perpetrator.

Baron describes an example from his practice in which a newly hired secretary at a major law firm complained of inappropriate sexual behavior by her supervising partner. The firm did not respond in any way that was obvious to her and the behavior persisted, so she quit and found a plaintiffs lawyer.

“The case went all the way to trial, and the jury found that the conduct occurred,” he says. “The jury awarded monetary damages—something in the $200,000 range—against the partner. But the jury awarded more than $7 million in punitive damages against the firm itself because the jury was offended that the firm had been put on notice of the misconduct and had not taken appropriate action.”

Companies that don’t respond to complaints or try to sweep misconduct under the rug risk further instances of misconduct by the accused party, and instill a culture in which the perception grows that such behavior is tolerated.

“If the company’s viewed as being lax about the type of misconduct in question and then the same thing occurs again, then the legal exposure just grows,” Baron says.

Fight Fears

Tackling sexual abuse aggressively is particularly important because the majority of incidents are not reported, Baron says.

“There’s a tendency to underreport this kind of misconduct, particularly when it involves superiors in an organization,” he says. “If someone is brave enough to come forward, in-house counsel needs to be sophisticated enough to know that where there’s smoke, there may be fire.”

The crux of the issue is sounding the alarm. Whether the misconduct is witnessed by a lower-level employee, brought to the attention of a middle manager, or lands on the general counsel’s desk, confronting it requires individuals along the reporting chain to stand up and directly confront a very uncomfortable and disturbing situation.

“Having a policy that enables employees to complain, investigating promptly and taking action when necessary is your best defense in these situations,” says Aliza Herzberg, who leads the employment practice at Olshan. “In-house counsel should not approach these issues with fear. Deal with them head-on. Anything else puts your organization in grave danger.” 

Contributing Author

Steven Andersen

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