Misconduct by the CEO, even if it’s not illegal, greatly impacts the organization – and lately there have been many unfortunate instances of scoundrels in the C-suite. The recent cases mostly involve improper relationships (such a useful equivocation) with employees or contractors.
In most every case, there’s a deluge of bad publicity. Stock prices of companies typically fall after the controversial incidents. Contributions to a not-for-profit organization often drop precipitously. Other negative impacts have included loss of major clients, federal investigations, and lawsuits or other shareholder action. And the aftershocks linger. CEO scandals prompt negative news coverage for almost five years after the scandal, new research shows, probably longer than many reputation experts thought.
What should an organization do when CEO misconduct becomes known either internally or publicly? When I was a young pup, in my first PR job, a C-level executive impregnated a young secretary after the company holiday party. The secretary was fired; the executive was reprimanded and kept his position. It was all kept hush, hush (except on the office grapevine). That’s not what happens today; nor should it. Sweeping such incidents under the rug is no longer acceptable – or even possible in most cases.
The new Stanford University report “Scoundrels in the C-Suite” investigates how corporate boards respond to such improper — but not illegal — CEO behavior and the extensive media coverage it generates.
“Although the appropriate response to illegal activity is likely to be very clear, it is less obvious what actions directors should take when the CEO engages in behavior that is questionable but not illegal,” researchers state. “The decision becomes more important when these actions are picked up by the news media, bringing public attention to the executive behavior.”
The researchers studied 38 examples of CEOs who committed unethical and controversial actions between 2000 and 2015. Incidents involved lying to stakeholders about personal matters such as a drunken driving offenses or falsified credentials, sexual affairs with the company employees, consultants or contractors, questionable misuse of corporate funds, and controversial or offensive public statements. The controversies resulted in more than 250 news stories each on average, the researchers found.
Responses to CEO Bad Boys
Companies issued press releases to address the misbehavior in 84% of the cases. Spokespersons provided comments to the press in 71% of the examples, and directors provided comments to the press in 37%. The Board of Directors initiated an independent review or investigation in 55% of the cases, mostly for alleged financial impropriety.
CEOs were terminated in 58% of the examples. Two were rehired by the same company. In about a third of the cases, the Board took other kinds of actions against CEOs, such as removing them from the board or stripping them of the chairman title.
The Stanford study recommends that boards try to detect misbehavior in its early stages by using tools such as workplace surveys, third-party workplace review sites, and social media monitoring and measurement services. Ideally, the board can take action before the misbehavior is widely reported.
Researchers Urge being Proactive
“From a board perspective, you want to know this stuff and take action,” Dave Larcker, a Stanford professor and report co-author, told Bloomberg.
Depending on the category of crisis, most PR experts typically recommend companies follow the PR crisis playbook that entails quickly apologizing, making amends, cutting ties with the offending party. They also urge companies to monitor the media and social media to obtain up-to-the-minute reports, identify media mentions that call for responses and gauge the effectiveness of corporate communications.
Bottom Line: Boards of directors often learn about the CEO’s disreputable behavior in media reports. However, boards can learn of the behavior in its early stages with the help of internal feedback, social media monitoring, and other tools. An early warning system enables boards to take proactive steps and avoid the disparaging headlines and other fallout.
William J. Comcowich founded and served as CEO of CyberAlert LLC, the predecessor of Glean.info. He is currently serving as Interim CEO and member of the Board of Directors. Glean.info provides customized media monitoring, media measurement and analytics solutions across all types of traditional and social media.
