More CEOs fired for unethical behavior, study finds

May 23, 2017
<p>Uptick in turnover due to greater scrutiny rather than bosses' behavior worsening, report says

CEOs may sometimes seem to be unassailable corporate leaders, but new research shows a growing number of them are facing the axe for misbehaving.

According to research conducted by Strategy&, PwC’s strategy consulting business, the percentage of CEOs forced out of the corner office due to ethical lapses has increased globally from 3.9 percent between 2007 and 2011 to 5.3 percent between 2012 and 2016.

These figures aren’t due to a rise in immorality among the chief executive herd, but rather an increase in scrutiny of them, according to the report’s authors. Strategy&, which studied CEO successions at the world’s largest 2,500 companies over the last 10 years, points to trends driving the rise in CEOs departing following improper conduct by themselves or their companies.

For one thing, it says, the financial crisis and following recession led to an increased public focus on corporate misbehavior, prompting a spike in governance and regulation around the world. The level of scrutiny on public companies has also been amplified by the 24/7 news cycle, leading to the rapid spread of information, the authors write. When this is coupled with the use of digital communication tools – such as email, text and social media – the risk of impropriety being discovered, and word of it spreading quickly, is increased.

Finally, Strategy& notes that many companies are looking further afield for growth opportunities and lower costs, which are often found in emerging markets where there is greater ethical risk in terms of conducting business and difficulties in ensuring there are no questionable practices in the supply chain.

‘CEOs need to lead by example on a personal and organizational level, and strive to build and maintain a true culture of integrity,’ says DeAnne Aguirre, global leader of Strategy&’s Katzenbach Center of Innovation for Culture and Leadership.

NORTH AMERICA
In the US and Canada, the percentage of CEOs who were removed due to unethical behavior has more than doubled over the past decade, from 1.6 percent of all successions between 2007 and 2011 to 3.3 percent between 2012 and 2016. But this is still lower than the percentage of forced exits in Western Europe and the Bric countries – Brazil, Russia, India and China – where the rate was 5.9 percent and 8.8 percent, respectively, between 2012 and 2016.

The research finds a correlation between market capitalization and the chances of a CEO being found to have engaged in, or overseen, immoral or unethical activity. The percentage of large-cap CEOs in North America leaving under such a cloud climbed to 7.3 percent between 2012 and 2016, compared with the overall average of 3.3 percent. PwC defines large cap as $18.7 billion or more.

Kristen Rivera, partner at PwC US, says this validates the firm’s assertion about the drivers of CEOs being found out, as ‘the largest companies are the most affected by [those trends] and are subject to the greatest scrutiny.’ PwC’s research also suggests that joint chair-CEOs in North America are more likely to be forced out of office than those who solely hold the office of CEO. 

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