Wow! Our second contest hit a responsive chord.

This was the problem: Two bank employees were having an affair in the storage room of the bank. The CEO's secretary found out about this through the bank's rumor mill. She, in turn, told the CEO since she served as his eyes and ears in the organization.

What to do? If the CEO took action, it would show he had an information source in the bank. Everyone would know it was his secretary. She would then be thrown "out of the loop," and his means of learning what was going on would be trimmed severely.

If he did nothing, the affair would continue, hurting morale in the entire bank.

Responses were numerous. One I particularly liked came from my wife, Beverly, a professional trainer. She, of course, is ineligible to win our award: presidency for a day of the Schmidlap National Bank. But her response is worth printing:

"The CEO should announce that for security purposes they are putting surveillance cameras throughout the bank, including the storage area where the affair had been taking place. This would stop the activity by denying the participants a place to `work,' while not letting on that the CEO knew what was happening."

While some respondents blamed the CEO for poor managerial style, Dawn P. Smith, assistant corporate secretary and legal officer of the Meridian Bancorp in Reading, Pa., analyzed the issue from the viewpoint of the actions and attitudes of the secretary:

"Having been an executive secretary to a CEO of a bank corporation and bank for many years prior to my connection with my current employer, I feel I can contribute an answer to your question:

"Number one, the secretary to the CEO is part of the problem. An executive secretary `sees no evil, hears no evil, and speaks no evil,' even though she is aware of the evil. This goes for everything during working hours. I am convinced there are those co-workers who take advantage of an executive secretary by `feeding' her information and happenings they want the CEO to know of but are afraid to tell him or her, therefore taking the heat off of them by having no responsibility in the matters. I know, I have been there.

"How can a CEO trust his secretary with his business and/or personal affairs if she `tells all' about others? He, too, is responsible if he condones this action by his secretary and expects her to do his investigative in-house work."

As to actual steps to be taken. There were several approaches.

Lanny R. Tribble, partner of Financial Management Solutions Inc. of Atlanta was the firmest, suggesting that both employees be fired if they do not resign when confronted.

Michael Matossian, vice president and associate general auditor of First Fidelity Bancorp in Newark, N.J. was gentler in his approach:

The CEO should discuss the situation with the director of human resources without revealing his source of information. The personnel director should, in turn, confidentially approach both employees and inquire whether a rumor that had come to his attention is true. The director should be mindful of a potential libel suit against the bank and therefore must temper his accusation unless he has documented proof.

Without pressing, for an answer, because most will deny such a rumor, the director should remind the employees of the code of conduct that requires professional behavior during working hours. He should insist that such behavior would not be tolerated in the future and would result in immediate discharge. What the employees do after work is their own business as long as it does not interfere with their bank performance or the reputation of the bank.

Richard J. Seaman, chief financial officer of Rockland Trust in Rockland, Mass., had a similarly softer approach.

He also has a unique idea at the end of his response:

"It is not the responsibility of management to ensure compliance with `thou shalt not covet thy neighbor's spouse' (politically correct version). However, a situation like this can indeed be embarrassing and counterproductive for the bank.

"Why the employees are having the affair and choose to bring it into the secluded areas of the bank may represent a lack of sound judgment. This should be a concern of the CEO. If these employees have decision authorities, it would be an area to watch more carefully. However, this is not a basis for terminating an employee. A concise, off-the-record, conversation with the employees should remove the affair from the grapevine and hopefully ensure that the workplace is the workplace and not `tryst central.'

"If the situation continues to take place in the bank, then the CEO indeed has a basis for termination based on lack of judgment, ulterior impact on other employees, and lack of confidence that the two employees can be counted on to make appropriate, unemotional, decisions in the future.

"Just think how the examination report could read - `list name of any active officers and employees who, during the last calender year, did not remain continuously faithful to their marriage - at the bank.' With proper fee structure, this could turn the review of the exam report into a profit center."

Our winner of the coveted role as president for a day of the Schmidlap National, Bank goes to Joseph R. Barkley, a vice president in the insurance products group of the Chase Manhattan Bank in New York.

Our new President responds:

"Action should be taken in two steps: The CEO, without any fanfare or attention, meets the male, `Mr. Goodguy,'if possible, in the male person's office and has a conversation something like this:

"I am going to have an `off the record' conversation with you. The CEO is always the last to know anything that is going on. I have observed actions by you that suggest to me that you might be having more than a business or professional relationship with Ms. Blank. How you live your life or conduct your intimate life and affairs is not really my concern. But if your private life somehow intrudes into the bank's activities, you bring it into my area of responsibility. I simply cannot accommodate this at the bank. If you are having something other than a business or professional relationship, please remove that from the bank. If you are not in fact having more than a business or professional relationship, then this has been an embarrassing conversation for both of us. But one that I felt was necessary, and I would appreciate it if you would take the appropriate action.'

"Dealing with the lady is more difficult. An approach is for the CEO to ask the male to speak with the woman and act appropriately. Another approach is this:

"Let's presume that the secretary is a strong person and reasonably good actress. The CEO should send her to that lady in a very private and discreet conversation that goes like this:

"I am very embarrassed to talk about this, but Mr. CEO asked to me speak with you as he is extremely embarrassed also. He said that whatever you wish to do with your life outside the bank is entirely your responsibility, but if it somehow intrudes into the bank in an inappropriate manner, then it becomes his responsibility. He would like you to make sure that your actions are appropriate here in the bank and that you try not. to bring any of your personal relationships into the bank. I think he would be available to talk to you, but he is feeling a bit embarrassed about the situation.'

"The secretary will not `burn any bridges' if she is appropriately embarrassed at having the conversation. She is `the messenger.' The wild card is how the woman responds. Most likely, if these two do not conduct the affair off premises or stop, then the CEO and the head of human resources need to confront everyone in a meeting and suggest that they cease or somehow begin termination procedures. This is a sexual harassment case in the making.

December's contest is going to be broader than the previous two.

The issue: With all the pressures on the community bank to make contributions to local schools, churches, nonprofit groups, and charities, how do you decide whom to support and how much to give each, if any.

Answers can be mailed to the address below or faxed to 908-273-7309.

Mr. Nadler is a contributing editor of American Banker and professor of finance at the Rutgers University Graduate School of Management.

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