One might think the behavior of Elon Musk would be the biggest problem any company could face regarding its Chief Executive Officer (CEO). However the arrest of New England Patriots owner and CEO Robert Kraft last week for solicitation may be a much larger harbinger of negativism and set of headaches for not only the Patriots but also the entire National Football League (NFL). Kraft is, according to Andrew Beaton writing in the Wall Street Journal (WSJ),  “facing charges of soliciting prostitution, swept up in what police described as a multicity investigation into human trafficking in the South Florida spa business.”

An arrest warrant is expected any day for Kraft, who was caught up in an investigation into a spa, named Orchids of Asia Day Spa, in Jupiter Florida. Jupiter Chief of Police Daniel Kerr, “said police had been collecting video evidence of individuals entering and leaving, where acts of prostitution allegedly occurred. Two people who run the spa were also arrested earlier this week.” Kraft was one of 25 people being charged. Kraft denied the charge and a spokesman for the Patriots owner released a statement saying, “We categorically deny that Mr. Kraft engaged in any illegal activity. Because it is a judicial matter, we will not be commenting further.”

The biggest problem for Kraft, other than answering the question of why his chauffeur would drive him to an isolated strip center for a massage when he certainly has enough money to bring one to him, is the possible existence of a videotape of Kraft engaging in illegal activity. Jonathan Jones, writing in Sports Illustrated, said, “A Jupiter police detective said Friday there is video evidence of Kraft inside the spa—that video has not yet been made public—which would contradict Kraft’s statement. If Kraft is eventually found guilty and/or a video is made public, clearly showing what the police allege, then one of the league’s most front-facing owners will have to become invisible.”

The problem for Kraft is that he is one of the most visible NFL owners. In addition to his ownership of the team over some 20+ seasons, Kraft is one of the most successful owners ever, with the Patriots winning six championships under his ownership. Albert Breer, writing in MMQB, said, “On top of all that, the NFL has positioned him as a statesman of professional football. He has the requisite resources to command the respect of all his peers, and he has been a major player in league matters. He currently chairs the media committee and serves on the CEC, finance and NFL Network committees. He was the face of the 2011 lockout resolution. He’s been a sounding board for commissioner Roger Goodell.”

What about the NFL? According to Kevin Seifert, writing in NFL Nation, “Everyone in the NFL, including owners, are subject to the league’s personal conduct policy. The policy covers “conduct by anyone in the league that is illegal, violent, dangerous, or irresponsible, puts innocent victims at risk, damages the reputation of others in the game, and undercuts public respect and support for the NFL,” per its text. Owners and club or league management are held to higher standards under the policy and are “subject to more significant discipline when violations … occur.”” The NFL policy applies beyond simply violations of the law, stating, “It is not enough simply to avoid being found guilty of a crime. We are all held to a higher standard and must conduct ourselves in a way that is responsible, promotes the values of the NFL, and is lawful.”

Ken Belson, Victor Mather and Patricia Mazzei, writing in the New York Times (NYT), said the NFL issues a Press Release on Monday stating, “Our Personal Conduct Policy applies equally to everyone in the N.F.L. We will handle this allegation in the same way we would handle any issue under the policy. We are seeking a full understanding of the facts, while ensuring that we do not interfere with an ongoing law enforcement investigation. We will take appropriate action as warranted based on the facts.”

What might that “appropriate action” be? Kraft could well face formal punishment from the NFL and its Commissioner Goodell. There are only a handful of examples of owners being fined for their conduct. In 2014, Indianapolis Colts owner Jim Irsay was suspended six games and fined $500,000. Seifert said “Irsay had been arrested on drug charges and ultimately pleaded guilty to one misdemeanor count of operating a vehicle while intoxicated. Irsay also admitted to a judge that he was under the influence of the painkillers oxycodone and hydrocodone. In 2010, Detroit Lions team president Tom Lewand was suspended for 30 days and fined $100,000 after a guilty plea to driving while impaired.” Jones wrote that then San Francisco 49ers owner Eddie DeBartolo, in 1989 “pleaded guilty to a felony charge of failure to report an extortion scheme in a case related to a former Louisiana governor. The NFL fined him $1 million and suspended him for the entire 1999 season. Though he could have returned to helm the 49ers, he eventually sold the team to his sister.”

Worse than any fine or even suspension could be the reputational hit that Kraft could take. If the existence of a tape is correct and that tape becomes public, Kraft may be required to, as Jones wrote, “look to take a backseat to all his future publicity” and even more harshly “fade to black.” Breer wrote that this incident could perhaps even damage Kraft’s chances for the Pro Football Hall of Fame, for which he was previously a shoe-in. While Breer believes Kraft will still get in to the Hall of Fame, he noted, “But there’s no question this could, at the very least, delay his entry.”

Equally, for Kraft, would he want this to be the final thing that both the NFL and the greater community remember him by? Most assuredly not but if the Commissioner forces him aside and his son Jonathan Kraft takes over running the team, it could certainly provide a negative reflection of Kraft. Further, as Breer wrote, “Operating in the shadows would be a big change for Kraft.”

There are lessons from the compliance practitioner from this Kraft saga. While most would say that the charges against Kraft are of a personal nature and not a business nature, this line is becoming increasing blurred. The Jeff Bezos divorce announcement, as much as the alleged extortion claim, put a spotlight not so much on his private life but rather how much his private life could impact Amazon.com. Does character matter? Of course it does and if the background of someone who will become your CEO has indicia that their actions might negatively impact on your organization, even if it is of a personal nature, then it has to be considered.

But it is more than simply promotion of someone to the C-Suite or even selection of a new CEO. How about in the mergers and acquisition (M&A) realm? What is the background of the senior executives of a target? If they stay on with the merged entity, you had better have some idea. The same is true of a joint venture partner. Just as partnering with someone who will engage in bribery and corruption can expose your organization to legal risk, the reputational risk of working with party who could get caught with a solicitation charge could cost your organization.

The bottom line is that when the private becomes public, you had better be ready to manage the risk entailed.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2019

0 comments