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In this courtroom drawing, Dominique Strauss-Khan, center, is flanked by NYPD Police officers and other defendants awaiting arraignment in Manhattan Criminal Court in New York, where Strauss-Khan faced charges for the alleged attack Saturday on a maid who at his penthouse suite at a hotel, in New York.Elizabeth Williams/The Associated Press

It's a board's worst nightmare.

Most corporate directors find it hard enough to confront a respected CEO about work-related poor performance, but it is even harder to tip-toe into the minefield of rumours about problems in an executive's personal life.

Yet ignoring the problems can also come with a price, as the International Monetary Fund is learning this week with the arrest of managing director Dominique Strauss-Kahn on charges of attempted rape and sexual abuse of a hotel maid.

Questions about Mr. Strauss-Kahn's past indiscretions will make directors on many boards more sensitive to CEOs' personal issues that could have an impact on an organization or damage its reputation, governance experts said Tuesday.

"High-profile peoples' personal vices can become public pretty quickly, and it can affect the organization," said business ethicist Christopher MacDonald, who teaches philosophy at Saint Mary's University in Halifax. "The CEO is setting an example with the company, and is also the public face of the company."

While no one could have anticipated the recent criminal charges, media reports have highlighted concerns about Mr. Strauss-Kahn's past behaviour that appear to have been overlooked by the institution's executive board, which is made up of 24 members who are political appointees from member countries around the world.

Mr. Strauss-Kahn - who in the past was dubbed "the great seducer" - was investigated by the IMF board in 2008 amid questions about a consensual affair he had with a staff member. The matter was settled with a reprimand.

In a 2007 book, a French journalist accused Mr. Strauss-Kahn of assaulting her during a 2002 interview. A French Socialist MP alleged in 2008 that she had been groped by Mr. Strauss-Kahn. An anonymous French author, claiming to be a former aide of Mr. Strauss-Kahn, published a book last year detailing his serial womanizing. Le Monde journalist Christophe Deloire said this week that he had been surprised by the lack of media coverage of his 2006 book, Sexus Politicus, which contained a chapter on Mr. Strauss-Kahn's alleged indiscretions.

Mr. MacDonald said it is clear a CEO's personal wrongs can jeopardize institutions in ways other employees cannot - even if the executive's behaviour is not illegal.

Sexual indiscretions, substance abuse or other errant behaviour can also spill over into the workplace and are often not entirely self-contained within an executive's personal life.

Hewlett-Packard CEO Mark Hurd left the company last summer after the board investigated a sexual harassment complaint by a former marketing contractor with whom he had had a "close personal relationship." The board said it determined there was no harassment, but said Mr. Hurd had filed false expense account claims that did not have a legitimate business purpose and served to conceal their relationship.

Corporations have "reputational capital" and it is a part of a director's fiduciary duty to protect it, argues New York-based governance consultant Beverly Behan, who has written a book on CEOs' relationships with their boards.

"It's not just a matter of 'are you hitting the numbers,' " Ms. Behan said. "It's are you doing something that might impugn the reputational capital. That's a shareholder issue."

Corporate governance advocate David Beatty, who is chairman of Inmet Mining Corp. and a director of Bank of Montreal, said he believes boards - or at least a board chairman - must confront a CEO's personal issues even when they are not criminal or do not involve clear corporate wrongdoing.

"The implication to me would be that there's a sign of trouble somewhere - alcohol abuse or sexual activity outside of the marriage, none of that speaks to a settled balanced person," he said. "There is a reputation risk to the company, [and]there is a morale risk within the company."

Mr. Beatty said the initial intervention should be handled personally by a chairman in a private talk with a CEO to give the executive a chance to address and correct the concerns. Depending on the nature of the problem, he said a chairman may ask a director who has faced similar issues in the past to help counsel the CEO.

If the problem isn't resolved, he said it is not uncommon for companies to offer the CEO a settlement to depart. The deal is typically handled quietly to avoid scandal, Mr. Beatty said.

Toronto lawyer Carol Hansell, a governance expert who also serves as a corporate director, says it is critical that boards get the facts straight and handle situations discreetly in the early stages.

She said corporate whistleblower programs can uncover legitimate wrongdoing, but have also allowed disgruntled staffers to make false accusations that can unfairly tarnish a CEO's reputation and even harm his personal life.

That said, however, Ms. Hansell said directors cannot fall back on a human instinct to avoid dealing with unpleasant personal issues.

"I think many of us do have the impulse that we prefer not to hear about peoples' personal lives," she said. "And you very quickly have to start thinking about whether the personal integrity of the CEO is a corporate asset that has to be protected, and that may depend on what the allegations are and the nature of the organization."

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