CEO Bad Behavior
I have been derelict with my blog so the guilt is driving me to spend some time today to post about a fascinating research analysis of when CEOs engage in questionable behavior and how the board responds to these reputation-damaging missteps. In an article by professors David Larcker and Brian Tayan at Stanford Graduate School of Business, entitled “Scoundrels in the C-Suite,” a nice provocative title, they question what happens to CEO who misbehave. And for a very good reason which is that misbehavior at the top influences behavior below and spreads exponentially. Time and time again, we hear about CEOs creating a tone at the top that impacts how the organization and allowed misconduct to be condoned. Since the authors realize that you can only measure what you can see, they looked at media reports of CEO misbehavior to determine how the board reacted and what type of retribution was doled out to the offender. Thus, Larcker and Tayan looked at at the news media between 2000 and 2015 and found 38 CEO incidents of bad behavior that garnered at least 10 stories in the news media. Here is what they learned:
• 34% involve reports of a CEO lying to the board or shareholders over personal matters—such as a drunken driving offense, prior undisclosed criminal record, falsification of credentials, or other behavior or actions.
• 21% involve a sexual affair or relations with a subordinate, contractor, or consultant.
• 16% involve CEOs making use of corporate funds in a manner that is questionable but not strictly illegal.
• 16% involve CEOs engaging in objectionable personal behavior or using abusive language.
• 13% involve CEOs making controversial statements to the public that were offensive to customers or social groups.
There are several other noteworthy facts that come out of the research. My favorite is that reports of CEO misdeeds had a lifespan of approximately 4.9 years on average after the initial media outbreak. That sounds about right to me. However, if you think about it, 5 years is a long time to see your name dragged in the mud and made reference to. I would think this reputation embarrassment would be a deterrent for anyone living in this age of social media. Also illuminating was that the most common response from companies was a press release or formal statement on the matter (84% of the time). And 58% of the misdeeds ended with the CEO’s termination so CEOs are not getting away with misbehavor. What happened to those nearly 4 in 10 CEOs who were not fired? Some lost their chairmanship title, dismissal from the board, reducing or elimininating the CEO bonus,