It’s not just football that’s been rocked by sex scandals – the City has long seen board members taking the concept of “employee relations” too far. Ruth Sunderland reports on how personal lives affect reputation and what communicators can do when salacious stories strike.

Tiger Woods. Ashley Cole. John Terry. John Dodds. It’s safe to say that virtually everyone in the UK has an opinion on the first three individuals: but how are they linked to the third?

No prizes: it’s a sex scandal. L’affaire Dodds – the sixtysomething former chief executive of construction company Kier Group ran off with his finance director, Deena Mattar – might not have hit the TV bulletins. But in the summer of 2007, it was hot news in the financial pages.

Employees and investors in the company were perturbed: as one put it at the time, it was bad for “morals and morale”. For a sportsman, such as John Terry, who is supposed to project a wholesome image for his sponsors, the revelation of extra-marital activity is a PR disaster. For a leading businessman (and it usually is still a man at the top), it is also a nightmare.

Unlike sportsmen, chief execs are not held up as role models for impressionable young children, but they are responsible for delivering results and are beholden to investors, customers and pension fund members, all of whom want them to have their mind on the job: the day job.

Affairs can be disruptive, they can affect morale if they lead to suspicions of favouritism, and they can be damaging to a boss’s dignity.

But executives, like everyone else, are human. They spend long hours at work, and sometimes they are attracted to their colleagues; a high percentage of marriages and long-term partnerships begin in the office.

The fall out, though, can be considerable, both inside and outside the company, so there will soon be a third person in the relationship: the head of public relations.

In media terms, the amorous executive has taken fateful steps outside of his normal territory. Most CEOs are well trained in dealing with financial reporters and editors and they will probably have built personal relationships with some specialists in their sector.

Unfortunately, those contacts on the business desk count for little because an entirely different brand of reporter is being drafted in: the home news desk. These newshounds don’t care about the business, or about building relationships – when this scandal is over, they will move on to the next story.

Turning to the courts to try to keep a story out of the papers is a highly risky strategy, not least because it raises the stakes with the media.

Attempting to suppress a story about his private life backfired on former BP boss Lord Browne, who went to the High Court in 2007 to try to stop publication of details of a four-year affair with former lover Jeff Chevalier, when the judge found he had lied to the court. The untruth was fairly innocuous, as Browne claimed he had met Chevalier in a park, rather than through a website, but the result was a barrage of salacious coverage in the tabloids.

Browne might have been better advised to have embarked on a damage limitation exercise, giving one interview to a hand-picked journalist.

A personal account of the issue of being gay at the top of the macho oil business would have gained sympathy in many quarters. Insurance company Aviva adopted a pre-emptive damage limitation strategy over its chief executive Andrew Moss, when news began leaking to journalists of his relationship with senior colleague Deirdre Galvin, whose husband Andrew Moffatt also worked for the group.

The company acknowledged the affair and gave a statement to The Times from chairman Lord Sharman saying Moss had his “full confidence”. Moss is still in his post.

Another approach is to ‘brazen it out’ and make a virtue of the situation. This was exemplified by Jack Welch, the former GE supremo in the US who fell for Suzy Wetlaufer, the editor of the Harvard Business Review, when she conducted an interview with him, despite the fact he was married to someone else at the time. Jack and Suzy went on to marry and to co-write several business books. They also made a schmaltzy appearance on US TV, where they declared their feelings for each other to interviewer Dan Rather, and the world. “I love you,” Welch said to Suzy. “I love you too,” she replied.

Welch, though, is a special case. He is a) retired and b) a living legend. For everyone else, a more low-profile approach is probably advisable.

There is no hard and fast evidence that affairs affect either the bottom line, or investor perceptions of a business, probably because each relationship is different and will be judged by the media on the facts of the individual case.

From an editor’s point of view, there will be a number of questions that will determine the tone and extent of the coverage. Is the story a purely private matter, or is it of legitimate wider interest? Often, the latter view will prevail, given the executive’s public role, his position of responsibility and trust. Is there any connected wrongdoing, such as misuse of expenses, exploitation of junior staff, unfair promotions and the like? Are there any other lovers, apart from the ones we know about? Apart from the affair, was the executive good at his job, and was the company performing well? Had he made capital, for himself or his company, out of his moral standing?

Journalists will also consider the general culture and the overall quality of leadership at a company. The allegations, for instance, that former Northern Rock boss Adam Applegarth had a relationship with a junior employee, Amanda Smithson, were seen in many quarters as a symptom of a culture of recklessness.

But in other cases, there is an acceptance that executives may have complicated personal lives without it affecting their work.

Policyholders in Equitable Life were outraged in 2003 when the then chief executive, Charles Thomson, was revealed to be having an affair with secretary Verity Coutts. However, Thomson weathered the calls for his departure and eventually the crisis blew over. He and Verity went on to have a long-term relationship, and a little girl.

Shareholders’ response can be hard to predict. Investors may react badly if an errant executive is left in place, particularly if they have other reservations about him. But if he is highly rated, they may not like him being fired. When Harry Stonecipher was ousted from US group Boeing after accusations of an improper relationship, shares fell on his exit, despite his private indiscretions.

It is hard to tell what effect, if any, an affair has on the market value of a business. Share price movements around the time of revelations are inconclusive, as there are inevitably other factors that could be exerting an influence. As for customers, they probably care more about products and services being up to scratch than they do about extra-marital antics in the boardroom – though if the business is already in bad odour with clients, it won’t help.

Whatever the individual facts, affairs like these need careful handling.

William Clutterbuck, of City PR agency Maitland, says: “There are four golden rules for dealing with this type of situation. First, try to make sure you understand the full extent of the situation before doing anything – it’s not always possible, and companies cannot always wait for full disclosure, but it is a priority.

“Second, common sense – as it applies to the man in the street, not to a heated meeting room – must rule the day. People’s attention soon moves on to something else if there is no more to it. Third, avoid pressure to do something, and don’t feed the fire with actions that will provoke the press or make the situation worse. Think about those ghastly happy families photo shoots at the garden gate staged by politicians.

“Fourth, you can’t make the bad press go away, but it can be diluted if there are positive things going on in the business elsewhere.”

“The boss may be about to be caught with his pants down but the PR shouldn’t be too; he or she needs to be ready for action when the story inevitably breaks”

Everyone involved in these scenarios agrees the worst situation is being caught by surprise. The PR nightmare to end them all probably took place in 2002 when a shareholder stunned the 300-strong audience by demanding to know whether chairman James Ross was aware that chief executive Roger Urwin had “pursued an affair with my ex-wife”. The revelations threatened to derail a planned merger with energy group Lattice, but even then, things calmed down. Urwin pulled off the merger regardless, and remained in post until his retirement several years later.

However, one leading City PR man, who has dealt with more than one of these situations, says advance knowledge and planning, where possible, is the key.

“The boss may be about to be caught with his pants down but the PR shouldn’t be too; he or she needs to be ready for action when the story inevitably breaks.”

The first task is to force the CEO to make a choice. “Once it is clear whether he is going to leave his wife or end the affair, then you can put a strategy in place. But he can’t have his cake and eat it.”

“In one case I dealt with, I remembered what Alistair Campbell was said to have done when the news of Robin Cook’s affair broke, forcing him to choose between his wife or Gaynor, and I followed that model.”

The strategy then involves telling all the stakeholders who need to be informed: the chairman, possibly the regulator, the rest of the board – and deciding on whether to agree a line if the news comes out, or to preempt it with a proactive announcement.

Either way, all the protagonists, including the mistress, need to be briefed about what to expect: doorstepping, offers of money, paparazzi. Dealing with the wronged wife is tricky. “She needs to be convinced that it is best for everyone if she says as little as possible. The CEO might offer her PR help for dealing with the media, paid for himself,” says one industry figure.

Tony McGarahan, PR adviser for Equitable Life when news broke of Thomson’s affair, says: “At the end of the day, it was a personal issue that did not affect his ability to run the company. There was a fuss for a while, but it died down. Policyholders accept that executives are human.”

Nevertheless, any strategy for dealing with executive infidelity would have to include the possibility of a resignation. If there was any issue about misuse of company funds, sexual harassment or other malfeasance, falling on his sword would be inevitable.

Another PR guru says: “There are cases where someone becomes overwhelmed with his own ego. The problem isn’t so much the affair in itself, but all the rest of the behaviour that goes with it.”

There is also the issue of a potential conflict of interest: the head of PR is ultimately acting for the company, not the CEO, and must put the company’s interests first. “You have to remember at the end of the day the company is bigger than just him.”

But what about the story we began with: that of John Dodds? After an initial flurry, interest in his affair with Mattar faded. The pair married, and both continued to work in the business until his retirement, though she ruled herself out of the succession race to take over from him as chief executive.

So for those two, at least, there seems to have been a happy ending.