More CEOs are being sacked for ethical lapses thanks to increased public scrutiny and accountability of executives.
Turnovers due to ethical lapses rose from 3.9 per cent of all successions in 2007–11 to 5.3 per cent in 2012–16 — a 36 per cent increase, according to the 2016 CEO Success study released by Strategy&, PwC’s strategy consulting business.
The study, which analysed CEO successions at the world’s largest 2,500 public companies over the past 10 years, doesn’t indicate that chief executives are any more or less ethical, just that they are more likely to be called out for it more these days.
“Our data cannot show — and perhaps no data could — whether there’s more wrongdoing at large corporations today than in the past. However, we doubt that’s the case, based on our own experience working with hundreds of companies over many years,” says Per-Ola Karlsson, partner and leader of Strategy&’s organisation and leadership practice for PwC Middle East.
Although it’s on the rise, the number of CEOs sacked for scandals or indiscretions remains small. There were only 18 cases of CEOs being sacked over ethical issues at the world’s 2,500 largest public companies in 2016. Examples of ethical lapses include fraud, bribery, insider trading, causing environmental disasters, inflated resumes, and sexual indiscretions.
The increase was more dramatic at companies in the US and Canada. Forced turnovers for ethical lapses at these companies increased from 1.6 per cent of all successions in 2007–11 to 3.3 per cent in 2012–16 — a 102 per cent increase. In Western Europe, the share of CEOs forced out for ethical lapses increased to 5.9 per cent from 4.2 per cent, and in the BRIC countries, to 8.8 per cent from 3.6 per cent.
PwC identified five trends shaping CEO Accountability:
- Public opinion: Since the financial crisis of 2007–08 and the Great Recession that it ignited, confidence and trust in large corporations and CEOs has been declining; the public has become more suspicious, more critical, and less forgiving of corporate misbehaviour.
- Governance and regulation: The rise of public criticism of executives and corporations has translated directly into regulatory and legislative action, and companies in the US and many other countries have moved to a zero-tolerance approach toward bad behaviour in the C-suite.
- Business operating environment: Companies increasingly are (1) pursuing growth in emerging markets where ethical risks, such as the possibility of bribery and corruption, are heightened, and (2) relying on extended global supply chains that increase counterparty risks.
- Digital communications: 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.
- The 24/7 news cycle: 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.