What gets a CEO fired? Traditionally, poor financial performance has been the leading cause of corporate boards dumping their chief executive.
But last year was different: 39% of CEOs were dismissed for ethical lapses, vs. 35% for financial reasons, according to a study of the 2,500 largest global public companies by Strategy&, a consulting arm of PwC. It was the first time in the 19-year history of the study that unethical conduct doomed more CEOs than any other reason.
“There’s a new call for transparency and accountability, especially with issues regarding the #MeToo movement and other indiscretions for which there is increasingly zero tolerance,” said Martha Turner, a partner with Strategy&.
Has CEO behavior gotten worse? More likely, the reason behind the trend is that standards have been raised, wrote Robert Prentice, a professor of business law and ethics at the McCombs School of Business at the University of Texas. “Formerly, corporate boards were too often inclined to hunker down and ride out a storm of controversy over a misbehaving CEO who was, nonetheless, getting the financial results that the board desired,” notes Prentice. “Today, thanks to the #MeToo movement, that is not a viable strategy for corporate boards. The heat from the headlines is too intense.”
The most notorious case in 2018, when the study counted 89 forced CEO departures, was that of CBS chief executive Leslie Moonves, who resigned over sexual-misconduct allegations and didn’t go away quietly. Other CEOs departed from Lululemon, WPP, Intel and Barnes & Noble following charges of sexual misconduct or other ethical lapses.
“Boards feel they have to hold their CEOs accountable to the code of conduct in the same way they would with [other] employees,” Bill George, a senior fellow at Harvard Business School and former CEO of Medtronic, told the Washington Post. “There’s a strong feeling from boards they have to do it.” Another factor is increased pressure from employees reacting to misconduct at the top, he added. “That’s a very important factor today that didn’t exist 10 years ago.”
The new climate probably will claim quite a few more CEOs, management experts predict. “The first wave of #MeToo took out some of the most high-profile figures,” John Paul Rollert, a professor at the University of Chicago who studies the ethics of leadership, told NPR. “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.”
Is there something about chief executives that makes them step over the line? Well, yes, in many cases. “The population of psychopaths is still overrepresented in the C-Suite,” wrote Prentice, the University of Texas professor. “The professional success corporate CEOs have enjoyed often leads them to be particularly vulnerable to the overconfidence bias and the self-serving bias. They will continue to tend toward having an unrealistic view of how moral they are and how important they are to their firm’s success,” he wrote, adding: “They will continue to be more likely than others to mistakenly believe that others agree with them. And, the science shows, they will be particularly adept at rationalizing their wrongdoing.”