Workplace romances make good headlines. Two years earlier, Harry C. Stonecipher was forced to resign the presidency of aerospace giant Boeing over a relationship with a Boeing executive. This spring, World Bank president Paul Wolfowitz was forced out after being accused of arranging a big raise and promotion for a woman he was having a relationship with. And in late May, the finance chief at health insurer WellPoint was ousted over a series of alleged romantic liaisons that violated the company’s code of conduct.


The problem isn’t confined to love and sex. Family relationships and office friendships can upset co-workers’ sense of propriety and fairness, too, and end up undermining an organization’s performance. The dilemmas are acute in family controlled businesses, when a founder choosing a successor must decide whether to favor a son or daughter or search outside for what may be better qualified managers. Succession is not always the issue. Indeed, in closely-watched media stories about the media, it’s been widely reported that family concerns are complicating ongoing discussions over whether to sell Dow Jones, publisher of The Wall Street Journal, while some outside investors have recently complained that family members running The New York Times Company have produced lackluster returns.


“We know that unfairness leads to all sorts of problems,” says Wharton management professor Jennifer S. Mueller. Research has shown that organizations seen by employees as unfair in pay, promotion or other practices have higher rates of stealing, bad-mouthing and other damaging behaviors, she says.


How can an organization keep family relationships under control? There’s no single solution. Family ties, romances and friendships have long been issues for organizations all over the world, and different cultures look at them differently, says Thomas W. Dunfee, professor of legal studies and business ethics at Wharton. These issues fall within an area of “moral free space,” rather than one of universal moral principle, he adds, leaving each society to deem what is considered appropriate.


In many areas of the world, especially Asia, personal connections are viewed positively, in part as a way to assure trust in an organization, and it is accepted — even expected — that a father will pass a business on to his son, according to Wharton management professor Raphael Amit. But business performance can suffer when decision makers lose objectivity and don’t make merit the top criteria, says Amit, who studied Fortune 500 company results for 1994 through 2000. “In the United States, among family controlled businesses, when a founder passes on the role of CEO to his son or daughter as opposed to hiring a professional CEO, on average the value of that firm goes down.”


More Singles in the Workplace

Most relationship issues, however, are not as easily quantified. How do you measure the negative impact of office jealousies, perceived unfairness and favoritism, or simple distraction?


Because the effects are hard to pin down, thinking about relationship issues has evolved, says Dunfee. Conflicts of interest have long been frowned upon, and still are. But many organizations are moving away from rigid policies in favor of flexible guidelines better suited to a workforce that is more evenly balanced between men and women, and is packed with singles.


At the same time, shareholders, employees and other stakeholders increasingly expect organizations to base decisions on merit rather than relationships, Dunfee says. “Times are changing, and there are greater stakeholder expectations in terms of integrity and impartiality.”


Today, a U.S. president probably would not appoint his brother attorney general, as President Kennedy did in the 1960s, or ask his spouse to lead a policy initiative, as President Clinton did with health care in the 1990s. And while it has long been accepted practice for colleges and universities to give admissions preference to the children of alumni and faculty, this is now being questioned over issues of fairness and diversity, Dunfee suggests.


According to Peter Cappelli, director of Wharton’s Center for Human Resources, “the standard policies on these things have changed a lot over time. In a previous generation, post-World War II, there was a sense in big companies that nepotism was a bad thing because it made it more difficult to be professional about management.” But as competition for good workers got tougher in recent years, rigid nepotism rules barring an organization from hiring an employee’s relative or spouse started to fade away, although it still is common to ban a supervisory relationship between family members, spouses and lovers.


In the post-war years, organizations also wrestled with romantic relationships as more women entered the workforce, Cappelli says. “Legislation on equal rights made most companies much more concerned about dating in the workplace and any conduct that could be interpreted as harassment. ‘No-dating’ rules between subordinates and superiors became very common. Some companies had no-dating rules even for peers, although they rarely seemed to be enforced.”


But today, efforts to bar all workplace romance are not as widespread as they once were, Cappelli says.


One reason is that rigid no-dating policies sometimes invited discrimination charges because, in practice, they tended to penalize women more often than men, according to sociology professor Janet Lever of California State University at Los Angeles. Men, she adds, were more likely to be supervisors, and if a male superior and female subordinate became involved, it typically was the woman who was transferred or let go.


No-dating policies simply don’t fit a modern workforce that’s nearly equally divided between men and woman, Lever suggests. These days, people wait longer to marry and, in many cases, work longer hours than their parents did. Work is where people meet people of similar interests, and employers need to recognize that stamping out personal relationships is unrealistic. “People are really beginning to accept the fact that it’s not a big deal to date someone” from work, although she agrees that the supervisor-subordinate relationship is still generally taboo.


Relationships that Turn Sour

A survey by the Chicago-based outplacement firm Challenger, Gray & Christmas found that the number of employed Americans who counted themselves as single increased by 18.3% between 1995 and 2005, to nearly 59 million, about 44% of the workforce. Nearly half of the single workers were aged 20 to 34, the “prime dating” years, the study concluded. “It’s no wonder that workplace dating is taking off [among these] 28 million young people, some of whom spend more time together in the office than they do outside of work,” writes the firm’s CEO, John A. Challenger. “Employers almost have no choice but to permit office dating.”


He notes that a 2003 survey by the American Management Association (AMA) found that 30% of managers had dated an office colleague, and that 96% of managers said it was acceptable to date a co-worker who was not a superior or subordinate. “Clearly, office dating has gained acceptance over the last decade or two, but companies should be careful when it comes to workplace relationships. Companies should attempt to establish some guidelines to avoid potential problems, including harassment claims, decreased morale and office gossip.”


The AMA survey found that 12% of organizations had written dating policies. Of those, 92% banned supervisors from dating subordinates, and 11% prohibited dating any co-worker.


“Companies that choose not to address the workplace romance issue at all could find themselves in a real quagmire if an office relationship turns sour,” Challenger writes. “These situations can lead to a sexual harassment suit fairly quickly. Other problems may result if one of the individuals in a relationship is promoted. Companies may find it difficult to insist that a once-approved relationship is now forbidden.”


What is the best policy?


Challenger recommends a written policy that clearly defines which types of relationships are permitted and what happens when people are involved with others in the same department or work group. He suggests the policy go so far as to define appropriate and inappropriate behavior, like handholding and pecks on the cheek, and he says managers should meet with couples to discuss the policies and make sure the relationship is consensual.


“More and more companies are coming up with policies around relationships at work,” says Janis Von Culin, a former human resources executive with a Fortune 500 company who now runs a Blue Bell, Pa., HR consulting firm, Von Culin Associates. “People get involved at work all the time; there’s no way we can outlaw it.”


Von Culin has helped a number of clients design relationship policies and address individual situations. In one of her cases, co-workers got married and the firm was able to avoid conflicts of interest by transferring one to another part of the company that did similar work. “That’s what enlightened companies do,” she says, noting that when she started in human resources 30 years ago, “it used to be the woman who lost her job.”


In another of her cases, an employee became involved with the head of the company. To avoid a sexual harassment dispute, each person was sent a letter describing the procedure for reporting any problem to the human resources staff. This avoided the Draconian response of forbidding the relationship or terminating one of the parties. At the same time it protected the firm by creating a clear record that the parties had been notified of potential problems and that the firm had an objective procedure for dealing with them. “I hear that more and more of these kinds of things are being drafted up-front, mostly in small, privately held companies.”


When people at different levels are involved, the key is to be sure the senior person does not make important decisions concerning the other, such as pay and promotions, she adds. It may be necessary to have such issues handled by a person or committee outside the chain of command that normally oversees the subordinate. “The main thing you’ve got to be able to do is have an approach that is fair — that is handled by multiple people. People will always say there is favoritism, but at least the organization can say, ‘No, here’s how we do the process.’”


A No-Big-Deal Approach

Dunfee argues that the best policies present general principals concerning conflict of interest rather than absolute fiats about who can get involved with whom. And he says there should be a committee designated to handle issues rather than a sole individual, since employees are less likely to see all members of a committee as biased.


Mueller shares that view, adding that “an important component is to make sure the policy is transparent and communicated.” Organizations should make it clear that it cares about the problems relationships can cause, but not act as if every dalliance is a crisis. “I would say that the no-big-deal approach is probably the most likely to keep people on task,” she says, adding that “the fairness principal is most important. People [need to] see that whatever happens is fair.”


According to Cal State’s Lever, organizations should go beyond policies on romance and family ties to cover any “close personal relationship.” Even though sexual involvement “is perceived as posing the greatest threat to objectivity, close after-hours friendships are important to note as well,” Lever wrote in an April 2006 article in Across the Board magazine. “Research supports our suspicion that ‘old boy’ buddies — and now ‘old girls,’ too — get more job perks than ‘lovers.’”


Lever suggests a policy that emphasizes an employee’s duty to disclose — to a designated supervisor or person in human resources –any personal relationships that could involve conflicts of interest. “When do you disclose? When you know that other people around you are going to be threatened.”


The policy should assure confidentiality, restricting the information to those with a need to know. Without this, many people will not disclose extra-marital affairs or same-sex relationships, Lever notes. Once the disclosure is made, the company should decide whether a conflict warrants action, such as transferring an employee. Even if employees fail to report relationships, having the policy helps protect the organization legally if the relationship becomes a problem.


No policy will work very well if employees see it as a set of edicts aimed at punishment, she warns. Employees must be made to believe the company is not opposed to relationships, just to conflicts of interest. “The key element is having a climate of trust.”