Tone(deaf) at the Top

PwC just studied the world’s top 2,500 corporations and reported that in 2018 a record percentage of CEOs left their positions, either voluntarily or having been forced out.  And for the first time in the 15-or-so years of this study, more left because of moral failures than any other reason.  In the past, poor financial performance was typically the run-away #1 reason for CEOs moving on.  But in 2018, 39% left due to ethical violations as compared to only 35% for poor financial performance.  In 2008, only 10% of CEOs departed because of moral lapses, and the percentage was less than 25% in 2013.

Is this trend bad news for those of us concerned with our business world’s moral climate?  Clearly, the report is bad news if it signals increased fraud, bribery, insider trading, environmental disasters, inflated resumes, and sexual indiscretions by CEOs around the world.

However, I suspect that the report is actually good news.  There is insufficient information available to know with certainty, but my guess is that CEO wrongdoing has not spiked.  Behavior has not gotten worse. Instead, standards have been raised, as they should have been.  Bad acts, particularly of a sexual nature, are now less tolerated by boards of directors.  Thank you, #MeToo movement.

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.  Today, thanks to the #MeToo movement, that is not a viable strategy for corporate boards.  The heat from the headlines is too intense.  A comparable dynamic occurs when an NFL player is accused of domestic abuse.  Many other types of wrongdoing by star athletes seem to be too often glossed over, but domestic abuse, especially if evidenced by a video, creates pressure that NFL brass cannot ignore.

The question now is whether this sea of change in how sexual harassment and other sexual misconduct by CEOs is treated will lead to a similar lack of toleration for other forms of CEO wrongdoing—fudging the numbers, insider trading, bribery and the like.  We can hope. I am not confident, however, that the #MeToo movement’s effectiveness can be replicated for other forms of wrongdoing.

What I am confident of is the fact that CEO misbehavior will likely continue at unacceptable levels, despite the fact that individual CEOs will more often pay a price for their wrongdoing.  The population of psychopaths is still overrepresented in the C-Suite.  And CEOs, and other titans of industry, remain peculiarly vulnerable to various pressures and biases that often help cause people to do things that they shouldn’t.  As we explain in our two Concepts Unwrapped videos on moral leadership, 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, leading them to be vulnerable to phenomena like the instant entitlement bias.  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.

If news stories about the 2029 version of the PwC report read: “In 2028 No CEOs Were Dismissed for Moral Reasons,” it will more likely be because standards have slipped again than that all our CEOs have turned into choir boys (and I use this gendered term to highlight the unfortunate fact that the PwC report also indicated that the percentage of incoming CEOs who are women declined in 2018).

 

Sources

Jeff Green, “CEOs fired for ethical lapses hit new high as complaints soared,” Bloomberg, May 15, 2019.  https://www.bloomberg.com/news/articles/2019-05-15/ceos-fired-for-ethical-lapses-hit-new-high-as-complaints-soared.

Jena McGregor, “More CEOs were forced out for ethical lapses in 2018 than poor financial performance,” Washington Post, May 15, 2019.  https://www.washingtonpost.com/business/2019/05/15/more-ceos-were-forced-out-ethical-lapses-than-poor-financial-performance/?utm_term=.e177d11fe62d

Ethics Unwrapped:  “Ethical Leadership Part I: Perilous at the Top,” https://ethicsunwrapped.utexas.edu/video/ethical-leadership-part-1-perilous-top

Ethics Unwrapped:  “Ethical Leadership Part II: Best Practices,” https://ethicsunwrapped.utexas.edu/video/ethical-leadership-part-2-best-practices.

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