How do you handle a negatively disruptive/unethical team member who is also a star performer with a virtually irreplaceable and critical skill-set?

Hello Karthik, in my environment we had a Gerald that is as you describe and one that bullied silently. the loud Gerald was toxic to his team and this was allowed to carry on for years. Some team members ended up taking things into their own hands when his manager couldn't decide what to do with him. It would have been best in my opinion to remove him from the team but he ended up removing himself after influencing enough members with his toxic behavior. It was only when the team came under new management that those remaining members behavior improved. The quietly bullying Gerald eventually got removed from his team too when the manager eventually realized that he is not the star player but indeed it was the quiet member who was forced into sharing these awesome ideas with Gerald. Gerald would just cleverly disguise the idea as his own since the quiet member wasn't good at public speaking. Both teams are better now.

I had a similar team member in the past. During the 1:1 meeting, I informed him that his behavior is not acceptable. Also, firmly and explicitly told him that If there is no change, there will not be a position available for him after six months.

While we all agree this behavior is unacceptable, and causes a variety of problems, and something needs to be done.
Apparently, this is not something new, and if so, what has been done to change the situation?

My point is that far too often there are performance issues, which people are let go for before being advised of or given a fair chance to correct their performance.
Should the same coaching be offered for the behavioral offenses identified here?
While this is not a performance issue other than the point made is this is high performing contributor, and that skill set is overcome by the disruptive personal behavior and ethical issues.
Being unaware is not an excuse, but is it a coaching opportunity?

In my experience, I’ve had a team member who joined our group from another organization where the culture was to win at all cost, so good ethical behavior was not something that was ingrained in their values.
Their previous organizations environment was very competitive and had little to no collaboration on their team where all members were disrespectful and there was an abundance of arrogance, humiliation and one upping each other was common practice and encouraged by their management. This employee left that organization because of that environment but brought their bad habits with them. While we felt fortunate to have the talent join the group, the temperament was not a match for our cohesive high performing team. And equally surprising was the employee vetting/hiring/onboarding process did not see the problem that was lurking under the surface.
Whether it was a bad hire done with blinders seeing only the talent didn’t matter, it became our problem
We gave the IF / THEN, challenge. If you continue as you are and don’t or can’t change, then there will be consequences.
Managing expectations can only be done after they are set and understood.
Our team did not allow their bad behavior to continue and stopped them in their tracks, which took the new team member by surprise. Their bad attitude and behavior were not accepted, and the team spoke openly to our new member about all the issues.
We rotated the pairing of the new team member with different team members, monitoring and controlling their actions and setting a consistent example of our culture and expectations. As the leader, I supported the team by reinforcing and helped set the expectations for our newest addition. In a relatively short time, there was a remarkable transformation, and this individual became a poster child for the ideal team player and a great value to our team and the customers we served.

With the growing adoption of self-directed teams, shouldn’t this be happening more than ever?

This was not a one off and was more of an extreme case.

Isn’t knowing and holding each other accountable to the policies that govern the organization already each of our responsibilities (2.2.6 & 2.3.1) per our Code of Ethics and Professional Conduct?

Fix or fire? What is your ethical leadership choice and best business decision?

@stephane
Of course we must always have risk awareness, but think this is more of a case of talent management and leadership. Do we as leaders help develop others? And do you train people to do technical work but not on soft skills and professional conduct?