Significant uptick in CEOs forced out of office for ethical lapses
The study, which analyzed CEO successions at the world’s largest 2,500 public companies over the past 10 years, reports that forced turnovers due to ethical lapses rose from 3.9 percent of all successions in 2007–11 to 5.3 percent in 2012–16 — a 36 percent increase, due in large part to increased public scrutiny and accountability of executives.
The increase was more dramatic at companies in the U.S. and Canada. Forced turnovers for ethical lapses at these companies increased from 1.6 percent of all successions in 2007–11 to 3.3 percent in 2012–16 — a 102 percent increase.
In Western Europe, the share of CEOs forced out for ethical lapses increased to 5.9 percent from 4.2 percent, and in the BRIC countries, to 8.8 percent from 3.6 percent.
The rise of public criticism of executives and corporations has translated directly into regulatory and legislative action, and companies in the U.S. and many other countries have moved to a zero-tolerance approach toward bad behavior in the C-suite.
Companies increasingly are pursuing growth in emerging markets where ethical risks, such as the possibility of bribery and corruption, are heightened, and relying on extended global supply chains that increase counterparty risks.
The use of email, text messaging, and social media has created new risks for ethical lapses. A company’s digital communications can provide irrefutable evidence of misconduct, and their existence increases the likelihood that a CEO will be held accountable.
Unlike in the mid- to late 20th century, when most executives and companies could maintain a low public profile, today the lightning-fast flow of Web-based financial news and data ensures that negative information travels quickly and widely.
Despite the global increase in forced turnovers for ethical lapses, companies in the U.S. and Canada have the lowest incidence of such dismissals — 3.3 percent in 2012–16 compared to 5.9 percent in Western Europe and 8.8 percent in the BRIC countries. ■