SEX, LIES AND W.R. GRACE

By John Greenwald

ANITA HILL MAY HAVE SENSITIZED most people to the fact of sexual harassment, but it was an obscure legal secretary at the giant firm of Baker & McKenzie who sensitized corporate America to the consequences. The precedent-setting $3.5 million award that Rena Weeks won last year against the law firm could not have have been far from the minds of directors at W.R. Grace & Co. when they ousted the firm's president and CEO, J.P. Bolduc. Last week the board acknowledged that evidence of sexual harassment was the real reason for his March 2 departure, and in the process created a new corporate milestone. "This is the first time that a company has taken the action of having a CEO leave apparently because of sexual harassment,'' says Kathryn Rodgers, executive director of the now Legal Defense and Education Fund.

The odd thing about this very modern melodrama is that it was played out among the septuagenarians on the board of Grace, whose founder, Irishman William Grace, started the venture back in 1854 by shipping bird dung from Peru to the U.S. for use as fertilizer. Perhaps more predictably, last week's admission came only after weeks of obfuscation on the part of the troubled company. The $5 billion conglomerate, which produces everything from plastics to kidney-dialysis equipment, initially blamed Bolduc's abrupt departure on "differences of style and philosophy."

But after the New York Times obtained a preliminary draft of the firm's upcoming proxy statement, which cited unspecified evidence that Bolduc, 55, had harassed five female employees, Grace conceded that the allegations had inspired the board to oust him. One director said the findings included documentation from five different areas of the company; the Times reported that his misconduct involved making "suggestive remarks'' and "engaging in unwelcome physical contact'' with the employees.

To be fair, the company noted in lawyerly prose that Bolduc, who is married and has four children, "vehemently denied and continues to deny" any sexual misconduct. Grace further pointed out that none of the women who came forward has so far filed any formal harassment complaint against the former CEO. As a result, Grace said, its directors decided "to request Mr. Bolduc's resignation, but not to seek his termination for cause."

The timing of Bolduc's ouster raised questions in some quarters about whether the board might have used the harassment charges as the ultimate weapon in a long-standing corporate power struggle. Before his departure, Bolduc had repeatedly clashed with then chairman J. Peter Grace, 81, who suffers from lung cancer. Among other things, Bolduc wanted the company to disclose to its shareholders that it was spending, among other things, $165,000 on Grace's annual nursing care and $200,000 a year for his security guards.

Says Bolduc attorney Gerald Walpin: "After Mr. Bolduc responsibly acted as a corporate officer, suddenly charges were made, when there had never been a complaint [of harassment] before." Walpin added that his client "was never given any opportunity to face any of his alleged accusers, or even to know the identity of any of his accusers, both of which he requested."

The ouster rattled large Grace shareholders like the College Retirement Equities Fund (which holds some 8% of the company's stock), who had applauded Bolduc's strategy of selling off subsidiaries to pare down the firm to a few core businesses. Declares Joseph Cappello, who follows the conglomerate for New Vernon Associates in New Jersey: "Bolduc had done a tremendous job. The reason to buy W.R. Grace stock was the changes he brought to the company."

Under pressure from the shareholders, the directors forced J. Peter Grace to step down as chairman on March 17 and limited nominations to the board to candidates under the age of 70. Directors also decided to whittle the number of board members from an unwieldy 22, many of whom had been close associates of J. Peter Grace, to a more manageable 12. And with Grace gone and the CEO job still without a permanent occupant, some insiders may have been worried that the shareholders might press to bring back Bolduc, a prospect that apparently led to the leak of the proxy statement.

The Bolduc case left some experts in corporate governance last week pondering whether a new kind of cutlery is being introduced into the game of corporate backstabbing: bring down the boss by saying he's a lecher. For the leaders of some women's groups, on the other hand, the wonder is that anybody ever listens. "The tendency of companies to protect the high-placed person is very great," says Ellen Bravo, executive director of 9 to 5, an advocacy group for working-women. In the vast majority of cases, employers choose to discipline an alleged harasser through a transfer, a demotion or a smaller bonus.

In Bolduc's case, the bonus got bigger, according to the Times. By agreeing to quit rather than being fired, he was able to console himself with a $20 million severance package, which amounted to $5 million more than what was required by his contract.

--Reported by Cathy Booth/Miami and Tom Curry and Jane Van Tassel/New York

With reporting by CATHY BOOTH/MIAMI AND TOM CURRY AND JANE VAN TASSEL/NEW YORK