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“Faithless” Ex-CEO Forced to Give Back $6.8 Million in Compensation

We all know that employee discipline is a necessary part of maintaining a productive workplace. Here’s a case that shows what can happen when a company fails to discipline its “top employee.”

In 1996, Business Week broke the scandal involving Astra USA (a subsidiary of pharmaceutical giant AstraZeneca) and its CEO, Lars P.E. Bildman. Business Week revealed that, among other things, Bildman engaged in rampant sexual harassment, used over $250,000 in Astra funds to settle numerous harassment claims against him by female employees, and hired (at Astra’s expense) “young and attractive” female “escorts” for himself and others.

Although Astra fired Bildman after the news broke, a tremendous amount of damage had already been already done. In addition to being a harasser himself, Bildman allegedly promoted an environment where other male executives were free to sexually harass subordinates. In 1998, under a consent decree with the Equal Employment Opportunity Commission, Astra USA paid $9.85 million to settle sexual harassment claims by approximately 80 employees.

In 1999, Astra USA sued Bildman for various claims, including fraud, breach of fiduciary duty, and waste of corporate assets. Although the suit was filed in Massachusetts, the case was governed by New York law which recognizes the “faithless servant” doctrine. This doctrine states that an employee held to a duty of fidelity (such as a CEO) who breaches that duty, forfeits any right to compensation. After the trial in 2002, Astra was awarded approximately $1 Million in damages. However, the trial judge denied Astra’s claim under the “faithless servant” doctrine for reimbursement of the $6.8 million it previously paid Bildman.

Last month (over 10 years after suit was filed), the Massachusetts Supreme Judicial Court reversed the trial judge, stating that under New York’s “faithless servant” doctrine, Bildman has to return the almost $7 million dollars received during his period of disloyalty, which the court observed was from 1991 to 1996.

While it was fortunate for Astra that New York law applied (as there is no “faithless servant” doctrine in Massachusetts), the more telling issue is why didn’t the Company uncover this and stop it earlier? Disciplining the CEO of a large, publicly held corporation is an extremely difficult and sensitive matter but it can be done. Does your Company have a system in place to address this? Do “hotlines” exist; do you have ombudsmen who are designated to confidentially hear such issues, etc.? If not, what mechanism will empower your employees to disclose such violations from the top?

Brody and Associates has assisted companies in handling issues of executive discipline, creating systems to address such issues, and handling other employment law issues in general. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.