When is it appropriate or disrespectful to refer to someone as "she"?

Solution 1:

I believe proper etiquette demands that you should never refer by "he" or "she" to someone who is or is presumed to be taking part in the same conversation. You should use either "you" or a proper name or title ("Cleopatra", "His Majesty", "Mr Archimedes", "my superior"). If you have used her name shortly before (at the very least during the same 'turn' of speaking in a conversation), only then can a pronoun be used, especially in less formal conversations.

However, I'm not sure that is the exact situation you encountered. And perhaps this bit of etiquette isn't as common as I think.

In any case, I can't see how "she" should ever be improper in writing about someone who isn't a party to the conversation.

Solution 2:

This book on Personal pronouns in present-day English notes:

Pronouns are commonly used to refer familiarly to people present; however, it can be a sign of animosity to refer to someone you know well by a pronoun rather than their name; in the so-called 'Squidgy' tape from late December 1989 Princess Diana consistently refers to Prince Charles as he. This is comparable to the (mock?) dismissiveness in Arthur Daley's use of Her Indoors to refer to his wife in the television series Minder.

This site on etiquette refers to the use of pronouns when the subject is present as being rude:

The overuse of pronouns has crept unfortunately into our language. The media are the worst at promoting the misuse of forms of address when it comes to elected officials. I was brought up learning the expression " 'she's' the cat's mother". This taught us to refrain from referring to people, especially present, as a pronoun. I therefore agree with you on this one. It may seem awkward at times, and social situations should not be awkward. Remember, too, that conversational and written word flow are different.

It sounds as if your boss has heard this piece of etiquette, and believes in it. You may refer to her as "she" in writing, but when you are in her presence you should use her name or title.