The role of CEO comes with an incredibly complex set of job requirements. CEOs must be able to identify areas for growth, develop innovative new services or productivity measures, manage and inspire employees, and more. Beyond these duties, a company’s chief executive must also adhere to any relevant rules and ethical guidelines; unfortunately, not all CEOs are up to the task, and as a result, there are countless examples of high-profile ethical violations by CEOs at companies of every industry and size.
While it is possible for CEOs to hold on to their jobs in the wake of such infractions, a recently published study shows that staying in the c-suite after an ethics violation is becoming harder and harder. According to an analysis of CEO turnover among the world’s 2,500 largest public companies over the course of the last 10 years, PricewaterhouseCoopers (PwC) found that CEOs are more likely to be fired for ethical lapses today than they were five years ago. For purposes of the study, PwC defines an ethical lapse as a “scandal or improper conduct by the CEO or other employees,” including fraud, bribery, insider trading, inflated resumes, and other forms of misconduct.
The study revealed that forced turnover of CEOs because of ethical lapses increased by 36% around the world during the five year period from 2012-2016 compared to 2007-2011. That increase was even more dramatic in the United States and Canada, where the rate of forced turnovers shot up by 102% for the same period.
Why are boards and corporate directors suddenly less willing to tolerate ethical misgivings by their CEOs? One of the study’s authors, Gary Neilson, pointed to several factors as reasons for the change, such as activist shareholders and new liabilities for corporate directors. Technology plays a part as well: New devices and software make it easier to identify and prove when a CEO commits an infraction, and social media gives the public a vehicle to voice their outrage. The confluence of these factors means that boards are now willing to pay the not-insignificant costs of firing their CEOs.
Bringing the hammer down on CEOs who act unethically is certainly a challenge, but it’s a wise decision for any company. Ethical violations can damage the organization’s reputation, lead to mistreatment of employees, as well as outright corruption or criminal activity, but there’s another consequence to unethical behavior that’s much less explicit: the development of a toxic, unethical culture across the organization. CEOs set the tone for their employees, so when employees see them break the rules and get away with it, then the employees will be less likely to adhere to those rules. As a result, it’s often in a company’s best interest to show the door to CEOs who commit ethical lapses and prevent one bad apple from spoiling the bunch.