How should leaders manage an accusation of inappropriate behavior?

In early-stage companies, founders often hold more than a title. They hold cultural power, decision-making authority, and in many cases, public identity. That concentration makes moments of crisis particularly complex, especially if allegations of inappropriate behavior involve someone at the top.

I have enough HR experience to be dangerous, but I am not an expert. What I have seen is what happens when teams skip the unglamorous basics like clear policies, reporting channels, and documentation. When something serious hits, the company scrambles, trust erodes, and every decision gets harder.

This piece breaks down how HR and governance professionals generally describe what actually happens when a founder or senior executive is accused of inappropriate behavior, starting with the rules, then moving through the process, governance, and decision-making. It is meant to be a practical overview, not legal or specialized HR advice, and - as always - it may be worth consulting the right experts depending on the situation.

What are the rules? 

Once an allegation is raised, a company has obligations regardless of who the accused person is. Those obligations stem from employment law, fiduciary duty, and basic employer responsibility.

If the allegation involves workplace misconduct, harassment, discrimination, or retaliation, the company is generally expected (and in many cases required) to take it seriously, document it, and assess whether an investigation is warranted. This is true even if the conduct did not occur during work hours, if there is a connection to the workplace, or if a power imbalance exists between parties.

Boards also have a duty of care and a duty of loyalty to the company. That means they cannot ignore credible allegations involving senior leadership simply because of reputation, fundraising timing, or personal relationships. Once a board is aware of a concern, it has a responsibility to ensure the issue is handled appropriately. Governance guidance often frames this as directors’ “duty of care,” “duty of loyalty,” and “duty of obedience.”

It is also important to distinguish between criminal proceedings and workplace processes. A company does not need a criminal conviction to take action. Employment lawyers and HR leaders often emphasize that waiting for legal outcomes can expose the organization to additional risk, particularly if employee safety or trust is compromised. HR investigations operate on a different standard and timeline than courts.

What HR does first

The earliest stage is often the least visible, but it is one of the most important.

HR’s first responsibility is typically intake and documentation. That includes understanding what was reported, how it was reported, and whether the information suggests a policy violation. Even if the concern is raised informally, it should be recorded. Companies without clear reporting systems often struggle at this step, which can delay appropriate action.

From there, HR often evaluates whether interim measures are needed. These may include placing the accused individual on administrative leave, adjusting reporting lines, restricting access to systems, or making schedule changes to prevent retaliation or further harm. These steps are not disciplinary. They are intended to protect employees and the organization while facts are gathered.

Confidentiality is another early challenge. HR usually cannot promise complete secrecy, especially if an investigation is required or legal counsel becomes involved. This can be uncomfortable for all parties, but transparency has limits when legal exposure and employee safety are involved.

In many cases, outside counsel or a third-party investigator is engaged. This is especially common when allegations involve executives, founders, or anyone with authority over HR. Independence matters both legally and culturally, particularly when trust inside the company is already fragile.

When the accused is the founder

Founders introduce a different level of complexity.

Unlike most employees, founders may control equity, hold board seats, or serve as the public face of the company. That concentration of power can complicate standard HR processes, particularly in organizations that have never had to enforce accountability upward.

In these situations, HR often escalates directly to the board or to a designated committee. Management may be conflicted or lack authority. The board becomes the body responsible for decision-making, often in close coordination with legal counsel.

“In an ideal environment, HR is a neutral party. The first job isn’t to solve or spin anything, it’s to document what was reported, assess immediate risk, and protect the people involved while facts are gathered.” Greer Procich, HR expert and Founder of Rethink Ability, told us. “What HR does first tells employees everything they need to know about whether they’re safe. That means writing things down, putting real safeguards in place, and, when a founder is involved, being transparent about escalation. HR shouldn't try to ‘handle it internally’ in situations like these. The responsibility shifts to involving the board and ensuring independent oversight, so accountability actually flows upward, and the power dynamic is fair to everyone involved.”

It also matters how involved the founder is day to day. Title aside, C-suite leadership face a different set of expectations, especially around employee safety and workplace culture. Boards often evaluate not only the allegation itself, but the founder’s role in shaping the environment where the issue occurred.

Timing adds another layer of complexity. Fundraising, partnerships, and acquisitions do not pause simply because an investigation is underway. But moving forward without addressing credible concerns can create long-term damage that outweighs short-term disruption.

How boards and investors evaluate the situation

Investors’ and board members' roles are more than transactional. In practice, their decisions are driven by risk management as much as returns.

When allegations surface, boards typically assess several factors at once. Legal exposure is one consideration, but not the only one. Talent retention, customer trust, company culture, and long-term brand impact all factor into decision-making.

Boards often evaluate these situations through a longer-term lens. Beyond immediate legal or reputational impact, they assess whether leadership credibility can be restored and whether employees, customers, and partners will continue to trust the organization.

In practice, boards often use interim measures, including placing a CEO on leave, while an independent review or investigation is underway. If concerns are substantiated, boards may move quickly to corrective action, up to and including termination or a negotiated separation. Separately, basic governance guidance makes a simple point: boards can remove a founder, depending on the company’s governing documents and applicable law.

Investors also think about precedent. How a company handles its first major leadership crisis sets expectations for future accountability. Quietly minimizing an issue may protect headlines in the short term, but it can undermine confidence in internal governance. 

How this has played out previously

The recent, widely covered University of Michigan situation, also raises questions for startups: when allegations involve someone at the top, what does a responsible response look like, and how do boards and leadership teams ensure accountability and try to manage the people involved to deliver safe outcomes?

In July 2025, Astronomer, a data company that started in Cincinnati and relocated its headquarters to New York City in 2024, became a highly-visible example of what happens when a leadership issue turns into a board-level process. After a short video from a July 16 Coldplay concert went viral, the company launched a formal investigation, stating, “The Board of Directors has initiated a formal investigation into this matter, and we will have additional details to share very shortly” and later announced that CEO Andy Byron had been placed on leave and then resigned on July 19, 2025. The board accepted his resignation and named cofounder and Chief Product Officer Pete DeJoy as interim CEO. About a week later, they confirmed that their Chief People Officer, Kristin Cabot, had also resigned.

Clinc, an Ann Arbor-based conversational AI startup, faced a different kind of leadership situation in 2017. According to later reporting of the incident, the company completed an internal investigation into complaints about CEO and cofounder Jason Mars’ conduct, and Mars then stepped down as CEO. According to The Verge, in the immediate aftermath the University of Michigan School of Information cited Mars’ resignation letter. It said it was suspending recruiting with Clinc, highlighting how internal processes and leadership decisions can trigger downstream trust and governance consequences.

WeWork represents a broader version of the same governance dynamic. While its founder was not accused of any misconduct, according to the Guardian, concerns about behavior intensified during the company’s 2019 IPO attempt, when public filings and subsequent scrutiny amplified questions about governance and related-party dealings. As the IPO unraveled, investor confidence fell, and the board pushed for a leadership change.

Across these examples, the specifics vary, but the pattern holds. When concerns about leadership behavior undermine trust or create risk, boards and investors step in, regardless of whether the issue originates in HR, governance, or public perception.

The part founders often underestimate

Many founders assume HR processes are primarily about compliance. In reality, they are about trust.

Employees watch how leadership responds to allegations, even when details are limited. Silence, delay, or defensiveness sends a message, whether intentional or not. So does clarity, consistency, and follow-through.

Founders also tend to underestimate how much responsibility shifts once a board is in place. Control can feel absolute until it is tested. In moments of crisis, governance structures, or the lack thereof, quickly come into play.

This is why HR leaders often advocate for clear policies, reporting mechanisms, and escalation paths early, even when they feel unnecessary. These systems are not built for worst-case scenarios, but they are tested for them.

What preparedness actually looks like

Being prepared does not mean assuming misconduct will happen. It means acknowledging that companies are made of people, and people sometimes fail.

At a minimum, companies benefit from having:

- Clear codes of conduct that apply to everyone, including founders

- Reporting channels that do not route concerns back to the accused

- Board-level clarity on how allegations involving executives are handled

- Established relationships with outside counsel or investigators before they are needed

If you don’t have an internal HR function, bringing in a partner can help you put the right people practices in place. That might mean a fractional HR leader, a local HR consultant, or an outsourced HR partner who can set up the basics, clarify reporting lines, and ensure clear escalation if the complaint involves leadership.

How do you find a local HR consultant? 

- Start with founder communities, networks, local ecosystem hubs, including SmartZones. 

- Ask your founder peers and operators for two names they would hire again.

- If you have investors or a board, ask for referrals too, since they often keep short lists for exactly this kind of situation.

- If you want something closer to a vetted referral network, sites like Digital Reference and Clutch can help you find and validate providers through warm connections and reviews.

These measures protect employees, but they also safeguard founders who act in good faith. Clear, consistent processes make decisions easier to defend and harder to dismiss as arbitrary or reactive. Still, no policy can substitute for accountability: it’s on founders, boards, and leadership teams to do the diligence up front, choose credible outside support when needed, and follow the process even when it’s uncomfortable.

A final note

Allegations involving founders or senior leaders are among the most challenging moments a company can face. They test values, governance, and trust all at once.

Handled poorly, they can derail a business entirely. Handled well, they can demonstrate maturity and accountability, even in painful circumstances. These situations involve real people, and leaders have a responsibility to handle them with care, follow best practices, and provide appropriate support to everyone involved, including the person accused, while still holding the line on standards and accountability.

From an HR perspective, the goal is not punishment or optics. It is safety, fairness, and the long-term health of the organization. That goal does not change based on title, equity, or reputation. Increasingly, neither do expectations from boards, investors, or employees.