leadership

Chief executives who lack ethics should be more afraid of public opinion than ever

Emma Koehn /

The age of the internet has made it near impossible for companies to hide when someone in their organisation makes a major blunder, and the research indicates the world is now tougher on bosses who stuff up than ever before.

PriceWaterhouseCoopers partners Kristin Rivera and Per Ola-Karlsson suggest in Harvard Business Review this week that the numbers don’t lie: more chief executives are being fired for “ethical blunders” than ever before, with scrutiny from both customers and shareholders accelerating.

The pair examine the numbers from PwC’s most recent global chief executive success study, which suggests the number of company heads who were dismissed for ethical lapses increased from 3.9% in the four years preceding 2012 to 5.3% at the end of 2016.

“Firstly, the public has become more suspicious, more critical and less forgiving of corporate misbehaviour,” Rivera and Karlsson say.

“Second, governance and regulation in many countries has become both more proactive and more punitive.”

While the research indicates the world has less patience overall with senior staff and leaders who are involved in actions like “sexual indiscretions” and bribery, there are some company arrangements that can make an organisation more at risk to being disrupted by unethical behaviours.

One risk factor is how long the chief executive has been in the chair; Rivera and Karlsson say leaders who get kicked out of their positions for ethical reasons have served longer, on average, than chief executives who leave for other reasons.

A possible reason for this is when leadership doesn’t change for a long period, any ethical lapses of judgment start to be seen as normal by staff members and are not corrected until they are revealed and it’s too late, they say.

Chief executives also appear to fall on their swords for ethics issues more frequently if they are both head of the company and chair of the board of the business.

The PwC partners suggest having a separation here could ensure companies lower their chances of a scandal by allowing multiple parties to oversee operations.

“It is likely that the boards of companies who have split the chairman and CEO roles are better able to act independently and investigate or oversee company operations,” Rivera and Karlsson write.

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Emma Koehn

Emma Koehn is SmartCompany's senior journalist.

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