More CEOs Being Dumped For Misconduct Than Financial Performance : NPR


Protesters protest against badual harbadment in January 2018 in Seattle.

Ted S. Warren / AP

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Ted S. Warren / AP

Protesters protest against badual harbadment in January 2018 in Seattle.

Ted S. Warren / AP

The heads are rolling in the corner office.

For decades, the main reason why executive heads were expelled from their jobs was the financial performance of the company. In 2018, all that changed. The misbehavior and ethical lapses that occur in the #MeToo era are now the biggest driver of a CEO falling from the top.

According to a new study by the consulting division of PwC, one of the largest audit firms in the country.

It is the first time since the group began to track executive turnover 19 years ago that scandals for bad behavior and not for poor financial performance were the main cause of layoffs among leaders among the 2,500 largest public companies in the world.

"A lot of bad actors are being eliminated out of reach of American companies," John Paul Rollert, a professor at the University of Chicago who studies leadership ethics., He told NPR.

The study found that 39 percent of the 89 CEOs who retired in 2018 left for reasons related to unethical behavior derived from accusations of badual misconduct or ethical failures related to fraud, bribes and insider trading.

Executives continue to be expelled due to poor financial performance, but only on 35% of the time.

And that change, the researchers say, is significant.

Increasingly, according to the study, corporate boards are approaching accusations of executive misconduct with a "zero tolerance stance," fueled in part by social pressures since the emergence of the #MeToo movement.

"For companies, they are recognizing that if they do not become aggressive with this type of behavior, they will face exceptional responsibilities when it comes to court cases," Rollert said. "And, therefore, it is better to address these concerns now than dealing with a multi-million dollar lawsuit and the bad public relations that come with that at some point."

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Some former CEOs say the study is proof that more women feel emboldened to share stories of alleged abuse or misconduct, and is changing the shape of American corporations.

"Employees are starting to say, 'How can you enforce a policy with us without holding CEOs accountable?'" Said Bill George, a senior fellow at the Harvard Business School and former executive director of Medtronic, who has served on the boards of Goldman Sachs and Exxon Mobil. "The behavior of the CEO must be irreproachable, the boards are aware of this and really feel pressured by that now."

George said that corporate boards realize that "there is a greater reputation blow of not acting than acting" to dismiss the executive.

Communication companies were the most affected, as they reported executives' turnover of around 24 percent, followed by the materials and energy business. Healthcare companies posted the lowest CEO dropout rate of around 11 percent.

Dozens of CEOs were shot down after accusations of badual misconduct or improper conduct in 2018. In July, the executive director of Barnes & Noble was expelled. Two months later, Les Moonves, president and CEO of CBS, resigned after facing accusations from a dozen women.

The year also saw the departure of the leaders of the clothing company Lululemon and Intel after the internal findings of a violation of the company's ethical guidelines.

The purging of the higher levels of white-collar jobs, Rollert predicts, will begin to hit the company's leaders who may not be as well-known as media executives and brand bosses who are household names. Soon, he said, the movement that is forcing major bosses will make its way to smaller firms, and said that it could even reach blue-collar workplaces.

"The first wave of #MeToo eliminated some of the most outstanding figures," said Rollert. "What we are beginning to see in this second and third wave is that US corporations take responsibility for themselves," he said. "Clearly there are many bad actors who still hide in the shadows and need to be swept away."

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