Top Reason For CEO Departures Among Largest Companies Is Now Misconduct, Study Finds
Monday, May 20, 2019
Heads are rolling in the corner office.
For decades, the main reason chief executives were ousted from their jobs was the firm's financial performance. In 2018, that all changed. Misconduct and ethical lapses occurring in the #MeToo era are now the biggest driver behind a chief executive falling from the top.
That's according to a new study from the consulting division of PwC, one the nation's largest auditing firms.
It is the first time since the group began tracking executive turnover 19 years ago that scandals over bad behavior rather than poor financial performance was the leading cause of leadership dismissals among the world's 2,500 largest public companies.
"A lot of bad actors are being cleared out of the reaches of corporate American," John Paul Rollert, a professor at the University of Chicago who studies the ethics of leadership, told NPR.
Thirty-nine percent of the 89 CEOs who departed in 2018 left for reasons related to unethical behavior stemming from allegations of sexual misconduct or ethical lapses connected to things like fraud, bribery and insider trading, the study found.
Executives are still being pushed out because of poor financial performance, but only about 35% of the time.
And that shift, the researchers say, is meaningful.
Increasingly, according to the study, corporate boards are approaching allegations of executive misconduct with a "zero-tolerance stance," fueled in part by societal pressures since the rise of the #MeToo movement.
"For companies, they are recognizing that if they don't get aggressive with this type of behavior, they are going to face exceptional liabilities when it comes to court cases," Rollert said. "And so better to address these concerns now than to deal with multi-million-dollar lawsuit and the bad PR that comes with that sometime down the road."
Some former CEOs say the study is proof that more women are feeling emboldened to share stories of alleged abuse or misconduct, and it is reshaping corporate America.
"Employees are starting to say, 'how can you enforce a policy on us without holding CEOs accountable?' " said Bill George, a senior fellow at Harvard Business School and former chief executive of Medtronic, who has served on the boards of Goldman Sachs and Exxon Mobil. "The CEO's behavior has to be beyond reproach. Boards are aware of this and are really feeling pressure around that now."
Corporate boards, George said, realize "there's a greater reputational hit of not acting than acting" to remove the executive.
Communication companies were hardest hit, reporting executive turnover around 24 percent, followed by materials and energy business. Health care companies logged the lowest rate of CEO attrition at around 11 percent.
Scores of CEOs were knocked down after allegations of sexual misconduct or impropriety in 2018. In July, the chief executive of Barnes & Noble was forced out. Two months later, Les Moonves, CBS's chairman and chief executive, resigned after facing accusations from a dozen women.
The purge from the upper echelons of white collar jobs, Rollert predicts, will start to hit company leaders who may not be as well known as media executives and the heads of brands that are household names. Soon, he said, the movement that is forcing out top bosses will make its way down to smaller firms, and he said could even reach into blue-collar workplaces.
"The first wave of #MeToo took out some of the most high-profile figures," Rollert said. "What we're beginning to see in this second and now third wave is corporate America taking responsibility for itself," he said. "There are clearly a lot of bad actors who are still hiding in the shadows that need to be swept out."
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