More CEOs ousted after an ethical lapse: Study

Corporate chieftains forced to leave because of ethical lapses  rose to 5.3 per cent in the period from 2012 to last year, up from 3.9 per cent during the previous five years.
Corporate chieftains forced to leave because of ethical lapses rose to 5.3 per cent in the period from 2012 to last year, up from 3.9 per cent during the previous five years.PHOTO: AFP

Researchers say this is due to bosses being held to a higher standard of accountability

WASHINGTON • Chief executive officers are losing their jobs over ethical breaches, a new study has found.

The rising numbers are not necessarily pointing to increased corporate misbehaviour, but to the fact that CEOs are being held to a higher standard of accountability, a report in the Wall Street Journal stated.

The study by Strategy&, the strategy consulting arm of auditing firm PricewaterhouseCoopers, found that although firings have been on the decline, CEO ousters were climbing mainly because of ethical lapses - either their own improper conduct or that of their employees.

Such forced exits rose to 5.3 per cent in the period from 2012 to last year, up from 3.9 per cent during the previous five years. Overall, around 20 per cent of CEO exits in the past five years were forced.

The study cross-referenced company disclosures on CEO departures with reports in the media and interviews by CEOs with sources inside or familiar with the companies. An announced resignation was counted as an ouster if it was established that the CEO left under pressure, the WSJ report said.

Strategy& found that bosses of large companies appear more likely to be ousted due to scandal than their counterparts at smaller firms. Among the largest United States and European companies by market value, the share of corporate chieftains forced to leave because of ethical lapses rose to 7.8 per cent of CEO departures between 2012 and last year, compared with 4.6 per cent in the previous five years.

DIFFERENT CORPORATE CLIMATE

A decade ago, (a board) might have slowly pushed the CEO out. You cannot do that now because of the Internet.''

MR PATRICK QUINLAN, CEO of ethics and compliance software company Convercent.

Strategy& partner Per-Ola Karlsson said that the rise of social media, waning public trust since the 2008 financial crisis and stringent regulation are making the bosses more accountable, and that it is unlikely companies are involved in more wrongdoing.

Mr Patrick Quinlan, CEO of ethics and compliance software company Convercent, said those forces are pushing besieged CEOs out of jobs sooner rather than later.

"A decade ago, (a board) might have slowly pushed the CEO out," he said. "You cannot do that now because of the Internet."

Many chief executives have been forced out in recent years from large conglomerates.

Mr John Stumpf, chief executive of embattled bank Wells Fargo, for instance, announced his retirement last year, a month after regulators hit the bank with a fine for improper sales tactics by its employees. He disclosed that 5,300 of its workers had been fired in recent years for the wrong practices.

In US congressional hearings, Mr Stumpf apologised and took responsibility for the scandal.

In 2015, Volkswagen CEO Martin Winterkorn resigned days after the carmaker's emission-cheating scandal broke. Mr Winterkorn had said that he was not aware the company had used software to cheat on diesel emission levels, according to the WSJ report.

A version of this article appeared in the print edition of The Straits Times on May 16, 2017, with the headline 'More CEOs ousted after an ethical lapse: Study'. Print Edition | Subscribe