Has the TMX board learned from its CEO’s departure?

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TMX Group Ltd., Canada’s largest stock exchange operator, is hunting for a new chief executive officer. Let’s hope its board of directors does a better job vetting candidates this time.

Its announcement that Lou Eccleston is taking early retirement following an investigation of his conduct left a lot to be desired. Although the third-party probe found “no evidence” that he engaged in sexual harassment or sexual misconduct at TMX, it did uncover bad behaviour.

But TMX wasn’t transparent about those findings. About 20 people reported instances of bullying and toxic behaviour by Mr. Eccleston, The Globe and Mail reported last Friday, citing current and former employees.

Worse still, the company has said little about how it would prevent a similar crisis in the future. Instead of outlining concrete steps to improve its risk management and corporate governance, TMX praised Mr. Eccleston’s “outstanding efforts” as CEO in its press release.

Make no mistake, Mr. Eccleston created reputational and legal risk for TMX. Regulatory filings suggest he’s entitled to walk away with at least $9.5-million in deferred compensation. So much for maximizing shareholder value.

Now almost all of the same directors who hired Mr. Eccleston are selecting his successor. Investors, employees and ordinary Canadians should be furious. TMX is the fulcrum of Canada’s capital markets and has a public-interest mandate. Its board owes us all an explanation about how he could create a noxious work culture under their watch.

“Unfortunately we cannot answer many of your questions without breaching confidentiality,” TMX said in an e-mail to The Globe on Wednesday. “What we can say is that on all of these issues, the Board’s decisions have focused on the best interests of TMX. Good governance is central to what we do and of necessity requires us to continually assess how we can improve all aspects of our practices.”

Mr. Eccleston didn’t respond to a request for comment.

After employment lawyer Janice Rubin was hired to investigate Mr. Eccleston’s conduct, whistle-blowers reported examples of him allegedly screaming at and ridiculing employees, according to people familiar with the matter. (The Globe is not identifying the sources because the employees are not authorized to speak to the press.)

In an e-mail to TMX staff on Wednesday, board chair Chuck Winograd acknowledged that Ms. Rubin probed issues “relating to the work environment during Lou’s tenure,” but provided no details of her findings. His e-mail went on to say that Ms. Rubin and a colleague would meet with any employee who wants to share information or provide feedback on improving the company’s respectful workplace policy until Jan. 29.

“Interviewees will remain anonymous,” the e-mail said. “Janice will summarize and report to the Board on an anonymized basis the issues and themes raised, with a view to identifying how we can continue to improve our work environment going forward.”

Great, but that doesn’t fix lapses at the board level. It appears directors failed to properly scrutinize Mr. Eccleston before and after he was named CEO. Nine of the 12 current directors were serving on the TMX’s board when Mr. Eccleston was hired in 2014.

TMX declined to comment on whether its board was aware of what the TMX calls “historical allegations” against Mr. Eccleston, relating to his previous employment at Bloomberg LP, before they hired him as CEO. Although those allegations of sexual harassment came to light in an investigative story by Business Insider in November, a former Bloomberg employee outlined those claims in filings to the New York State Division of Human Rights more than two decades ago.

Mr. Eccleston was not named as a respondent in that complaint or in any other Bloomberg employee lawsuits, but the filings accuse him of helping foster a hostile work environment. U.S. media wrote about the filings when Michael Bloomberg ran for New York mayor in 2001.

Even though allegations against Mr. Eccleston weren’t detailed in that coverage, those stories should’ve prompted TMX directors to ask questions given his senior role at Bloomberg. If they didn’t investigate, they should have. And if they did, this should’ve been a red flag. Vetting a CEO’s integrity is their job.

TMX must improve board accountability. It should create more explicit obligations for directors to monitor conduct risk as part of its board charter and board code of conduct.

It should also shorten its term limit for directors to ensure independence from management. (The maximum tenure is 12 years for directors who joined after May, 2011.)

TMX should also tweak its clawback provision for executive compensation. It currently applies if the CEO or another senior executive causes the company to restate its financial statements because of “intentional misconduct.” But why should it hinge on an individual’s intentions or a specific financial restatement?

Conduct risk is expensive. Statistics Canada estimates the cost of employee absence due to bullying and harassment at roughly $19-billion per year. Board members rarely report such violations.

As for Mr. Eccleston, he should voluntarily forgo his $9.5-million in deferred compensation. He broke trust with shareholders, staff and the investing public. It’s the right thing to do.