Coldplay, kiss cams and how to avoid a corporate catastrophe

The now-infamous “kiss cam” moment at a Coldplay concert, featuring US startup Astronomer’s CEO and HR head, has become more than just a viral sensation.

The incident sparked an internal investigation, change of leadership and overnight public scrutiny of company culture and governance. It potentially raises questions about internal oversight, conflicts of interest, and the impact on future funding, valuation and revenue. Indeed, there are plenty of examples of how a director’s conduct can lead to shareholder fallouts, triggering messy conflicts and even litigation. It could also trigger immediate consequences under “bad leaver” provisions in articles or shareholders’ agreements, leading to a forced sale of shares at cost or nominal value.

This latest incident played out in the worldwide media is a cautionary tale for boards and senior leadership about the real-life implications of directors’ duties and the fragility of corporate reputation in the digital age.

Directors’ duties and shareholder disputes

Under the Companies Act 2006, directors of UK companies are bound by a number of statutory duties, including the following:

• s.171: Duty to act within powers. Directors must act in accordance with the company’s constitution and only exercise powers for their proper purpose.
• s.172: Duty to promote the success of the company for the benefit of its shareholders. This includes having regard to the long-term consequences of decisions, the interests of employees, and the company’s reputation.
• s.173: Duty to exercise independent judgment.
• s.174: Duty to exercise reasonable care, skill and diligence.
• s.175: Duty to avoid conflicts of interest. A director must not place themselves in a position where there is a conflict, or possible conflict, between the duties they owe the company and either their personal interests or other duties they owe to a third party.
• s.176: Duty not to accept benefits from third parties.
• s.177: Duty to declare interest in proposed transactions or arrangements with the company.

While this particular incident may not involve a breach of fiduciary duty in the strictest sense, it raises serious questions under s.172 and s.175 of the Companies Act 2006. The reputational fallout, the potential for perceived favouritism or abuse of power, and the impact on commercial arrangements may all fall within the scope of a director’s obligation to act in the company’s best interests.

Furthermore, when a director fails to uphold their statutory duties under the Companies Act 2006, or their obligations under the company’s articles of association, it can trigger serious shareholder disputes. This is especially so in companies with minority shareholders.

The general statutory duties of a director are owed to the company, rather than directly to shareholders. Therefore, typically, only the company will be able to enforce them. However, in certain circumstances, a shareholder may be able to bring the following actions:

• Derivative action: a shareholder may be able to bring a derivative claim on behalf of the company under section 260 of the Companies Act 2006.
• Unfair prejudice: minority shareholders can petition the court for relief (under section 994 of the Companies Act 2006) where the affairs of the company are being, or have been, conducted in a manner that is unfairly prejudicial to the interests of the shareholders. For example, if decisions reduce share value or the company’s affairs are being conducted in breach of a shareholder agreement. There are strict criteria which must be met if an unfair prejudice claim is to be successful. Courts can order share buyouts, changes in management, or other remedies to protect minority interests (see our recent article for further discussion).
• Winding up: a shareholder who satisfies certain conditions, may petition for the compulsory winding up of the company on the ground that to do so would be just and equitable under section 122 (1)(g) of the Insolvency Act 1986. Just and equitable grounds could include justifiable loss of confidence due to mismanagement, or irretrievable breakdown in trust and confidence.

Preventing shareholder disputes

To reduce the risk of a shareholder dispute, we recommend the following steps for shareholders and companies alike:

• Ensure you have a robust shareholder agreement with a clear dispute resolution clause. In the event of a dispute, having clear procedures will reduce the scope for any confusion, and will enable prompt and decisive action.
• Ensure directors understand and comply with their statutory duties. Consider educational or training resources for the board to ensure directors are aware of their responsibilities, and how these can play out in real-life scenarios. 
• Maintain transparent communication between directors and shareholders.
• If you do find yourself in the midst of a shareholder dispute, consider (at an early stage) alternative dispute resolution mechanisms such as mediation to resolve tensions before they escalate.

Preventing workplace disputes

As well as shareholder disputes, workplace relationships can also create significant HR challenges – whether extra-marital or not. Whist there is no specific law against workplace relationships they can, if not carefully managed, expose businesses to employment disputes and reputational risk.

Aside from the obvious reputational risks in the Coldplay “kiss cam” case, one of the key risks is the potential for harassment and discrimination claims. Take, for example, a female colleague who faces less favourable treatment or unwanted conduct from colleagues because of her relationship with a male coworker. This could constitute harassment related to sex or even sex discrimination under UK employment law.

The risks don’t end there. When workplace relationships breakdown (especially if the split is acrimonious) there’s an increased risk of one party engaging in unwanted conduct of a sexual nature. In such cases, employers could find themselves facing claims of sexual harassment.

Without a clear policy on workplace relationships, employers also run the risk of mishandling disciplinary action. Disciplining employees for engaging in consensual relationships (even where extra-marital) without a formal policy in place could lead to claims of constructive dismissal or unfair dismissal.

Beyond the legal implications, there are practical challenges too. Relationships involving senior leaders or directors can create perceptions of bias or conflicts of interest, even if none exist. This perception can be difficult to shake and can severely impact staff morale. Concerns about protecting confidential information can also arise, particularly when relationships involve senior leaders with access to highly confidential and sensitive information and more junior staff.

To manage these risks, businesses would be well advised to put in place a robust “Relationships at Work” policy which clearly sets out the employers’ expectations when it comes to relationships at work and provides them with the tools to manage the risks associated with workplace relationships.

An outright ban on workplace relationships is unlikely to be realistic, but a good policy will place an obligation on employees to disclose relationships at work so that any risks can be managed. There should be an obligation on all employees to disclose workplace relationships, but particular emphasis should be placed on the disclosure of relationships involving senior leaders, particularly where they hold HR or compliance responsibilities so that any necessary steps can be taken, to manage and avoid conflicts or the appearance of impropriety.

The policy should also establish clear behavioural standards for those involved in workplace relationships, helping to prevent conflicts and maintain professionalism. Importantly, it should specify the circumstances under which disciplinary action may be taken to ensure the employer has the tools it needs to manage the potential risks associated with workplace relationships.

In addition, employers should ensure that directors and senior executives are aware that they set the cultural tone of the company. Personal conduct, even outside the office, can undermine internal policies and external trust and can expose them to disciplinary action up to and including dismissal.

Employers should also consider developing a crisis response strategy for dealing with issues which present reputational risk. The speed and clarity of Astronomer’s response (placing the CEO on leave and initiating an investigation) highlights the importance of having a good crisis management protocol that includes reputational risk management. Although UK employers should be wary of suspending employees and seek legal advice before doing so.

Final thoughts

The Coldplay kiss cam moment may fade from headlines, but directors and companies would be wise to learn from this set of circumstances. Directors are not just stewards of strategy and finance, they are custodians of trust, and in today’s hyper-connected world, a single moment of indiscretion can have serious boardroom consequences.