Business

More CEOs forced out for ethical lapses than poor financial performance

Bloomberg

Leslie Moonves, CBS’s longtime chief executive, resigned in September following sexual-assault allegations
Bloomberg Leslie Moonves, CBS’s longtime chief executive, resigned in September following sexual-assault allegations

Chief executives faced a year of reckoning in 2018 — but not for the reasons that traditionally have led to forced departures from the corner office.

Last year, as boards clamped down on misconduct in the #MeToo era and placed greater scrutiny on executive behavior, more CEOs were pushed out for ethical lapses than for poor financial performance or struggles with their board — a first for the study by Strategy&, the strategy consulting arm of PwC.

Thirty-nine percent of the 89 forced CEO departures in 2018 were due to ethical misconduct, which the study defines as the removal of a CEO following a scandal or improper conduct.

Examples include fraud, bribery, insider trading, environmental disasters, inflated resumes or sexual indiscretions.

Meanwhile, 35 percent of ousters in 2018 were a result of poor financial performance and just 13 percent were because of conflicts at the board level or with activist investors who weren’t about financial performance but led to the CEO’s ouster.

Compare that to a decade earlier, during the financial crisis in 2008, when 52 percent of forced exits were tied to financial performance, 35 percent to board conflicts and just 10 percent to misconduct.

Even in a less disastrous financial year — say 2013, as the economy was recovering but before the #MeToo movement began — nearly 40 percent of terminations were the result of performance, 30 percent the result of board struggles and less than a quarter happened because of ethical lapses.

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For boards of directors, said Martha Turner, a partner with Strategy&, “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.” There’s more “reluctance for the board to give CEOs the benefit of the doubt.”

The year was filled with marquee names who stepped aside amid investigations into their behavior. In September, for example, CBS’s powerful longtime chief executive Leslie Moonves resigned following sexual-assault allegations.

In December, the company said Moonves would not receive his severance.

The year also saw the departures of CEOs from Lululemon, WPP, Intel and Barnes & Noble, to name a few — often amid allegations about misconduct or violations of company policies that ranged from sexual harassment to consensual relationships with employees.

“Boards feel they have to hold their CEOs accountable to the code of conduct in the same way they would with employees,” said Bill George, a senior fellow at Harvard Business School and former CEO of Medtronic who recently retired from the Goldman Sachs board. “There’s a strong feeling from boards they have to do it.”

Some of that pressure, George said, is now coming from employees, who are getting their voices heard more often by the board.

“That’s a very important factor today that didn’t exist 10 years ago,” George said. “I don’t think the conduct has changed, but the standards have changed.”

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