CEO turnover for misbehavior up 36% worldwide

More CEOs are being ousted than ever before for ethical missteps at the world's 2,500 largest public companies, according to a study conducted by PwC's Strategy&.

Turnover for unethical behavior increased 36 percent between 2007-11 and 2012-16. From 2007-11, 3.9 percent of CEOs at the world's top companies were forced to step down due to misbehavior, compared to 5.3 percent in 2012-16, according to the report. The increase was even larger — 68 percent — among North American and European countries, where CEO turnover for ethical reasons increased from 4.6 percent in 2007-11 to 7.8 percent in 2012-16.

However, Strategy& notes in an analysis of the study that this jump in CEO turnover is not necessarily because more CEOs are committing fraud, bribery, insider trading and other ethical transgressions. Forced turnovers for ethical concerns and other reasons have in fact decreased over the time period studied, from 31.1 percent in 2007-11 to 20.3 percent in 2012-16. Instead, the increase in turnover for ethical reasons is likely to due a blend of factors, including increased suspicion of companies by the public, more proactive and punitive governments, increased ethical risk as company footprints grow, exposure to new types of risks from digital communication and amplified publication of negative information by the 24/7 news media, according to the analysis.

However, there are a few things organizations can do to avoid CEO misbehavior. The first is division of power. The study found CEOs with joint titles as chairperson were more likely to be ousted for an ethical transgression than those with just one title as CEO. But this trend seems to be declining. Among the top 2,500 public companies in the world, 48 percent of leaders held joint titles in 2002, compared to just 10 percent in 2016.

The second strategy to reduce ethical infractions at the top is to limit tenure. The study found CEOs ousted for misbehavior were at the helm for a median of 6.5 years compared to those who were ousted for other reasons, who held the job for a median of 4.8 years.

Lastly, Strategy& recommends companies build a culture of integrity to avoid executive misbehavior by addressing external pressures, business processes and internal influences.

"To reinforce those behaviors, the company's organizational ecosystem must address the underlying conditions that are always present when employees engage in illegal or unethical acts, by (1) ensuring that the company isn't creating pressures that influence employees to act unethically; (2) making sure business processes and financial controls minimize opportunities for bad behavior; and (3) preventing employees from finding ways to rationalize breaking the rules," the authors wrote.

Read more here.


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