The rate of CEO dismissals are slowing down worldwide, according to a recent PwC report. But more are being fired for ethical lapses.
Boards of directors, the media, institutional investors and regulators are holding corporate executives more accountable, the result being that 5.3 percent of CEOs were fired over ethics violations between 2012 and 2016.
That is a small uptick from the 3.9 percent who lost their jobs for similar reasons between 2007 and 2011 – but again, CEO turnover has also slowed down in recent years, largely due to a slowdown in merger and acquisitions activity.
The report does not suggest ethics or improving or declining one way or another, and again, the raw numbers of CEOs let go over dubious behavior are relatively small: in 2016, only 18 such cases occurred within the world’s 2,500 largest publicly owned companies. The ability to quantify ethics violations on a grand scale would be a difficult task for any consulting firm. But in a blog post, three of PwC’s leaders suggest that overall, companies’ corporate governance structures are improving. As companies improve their internal controls and procedures, they are also held to a far higher standard by their stakeholders, shareholders and the general public.
For example, the public has become far more critical about how companies conduct themselves – and social media is the megaphone by which individuals can badger companies into being more transparent and accountable. For those who felt burned by the Enron, MCI Worldcom and Tyco scandals earlier this century, those memories are still very much fresh. Hence the public is quick to react before any bad behavior, from its point of view, can spiral out of control.
Starbucks, for example, landed in trouble when its United Kingdom team attempted a cheery Twitter campaign at Christmastime a few years ago – only to be reminded by the public about their suspicions over whether the coffee giant was paying its fair share of corporate tax. Recently, Wells Fargo CEO John Stumpf quit after a bevy of dodgy business practices rocked the bank, from the fake account scandal to questions whether the company bent lending laws covering military families. Forget the cliché of “the cover-up is worse than the crime,” as the 24/7 news cycle, paired with the quick ability to start a social media firestorm, reveals the crime very quickly nowadays. Therefore, companies are increasingly being held to a higher standard, and will punished much more harshly in the court of public opinion when any transgressions come to light.
In addition, PwC’s Per-Ola Karlsson, DeAnne Aguirre and Kristen Rivera explained that global market trends also have a role in clamping down on unethical conduct. More companies are chasing after growth in emerging economies, where laws and regulations in general are often less stringent, weakly enforced, or both compared to wealthier nations. The outcome is even more rigor on ethics policies, as no company wants to land in trouble. Witness the apparel industry, for example, which is cleaning up its act after years of allegations related to environmental degradation and human rights violations. Corporations including Gap Inc. and VF Corp. say they are striving to make their supply chains for accountable – which arguably can help an entire company’s operations become far more transparent with fewer ethical lapses.
PwC’s report highlighted additional trends related to ethics. CEOs who also had the title of board of directors’ chair tended to to be dismissed over ethical lapses at a higher rate compared to the rest of their peers. Many CEOs let go over ethics questions also tended to have a longer tenure than executives dismissed for different reasons – suggesting that strong financial performance over time made more companies complacent on the corporate governance front.
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