Rising expectations of chief executives

A higher percentage of company leaders are being fired for ethical lapses, but not necessarily because of more lapses but because of a greater public demand for honesty and accountability.

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A building is reflected in the windows of a Wells Fargo Bank in Los Angeles. Wells Fargo plans to cut an additional $2 billion out of the bank’s operations as it works to recover from its sales practices scandal in 2016 and respond to customer demand for more online services. In the results of an investigation released April 10, Wells Fargo's board of directors has blamed the bank's most senior management for creating an "aggressive sales culture" at Wells that eventually led to the bank's scandal over millions of unauthorized accounts.

A new global survey about the firing of corporate leaders, which is quite positive about changes in public thought, may help explain some of the heightened scrutiny of President Trump for his recent actions.

The survey was conducted by Strategy&, the consulting business of PricewaterhouseCoopers. It analyzed successions of chief executive officers at 2,500 of the world’s largest public companies over the past 10 years. Those successions that were forced by ethical lapses rose from 3.9 percent in 2007-11 to 5.3 percent in 2012-16. That is an increase of 36 percent worldwide.

 

In the United States and Canada, the increase was even higher – 102 percent. The forced turnovers rose from 1.6 percent of all successions in 2007-11 to 3.3 percent in 2012-16. (Note that the percentages are lower than those globally.)

The study attributes these increases to a number of trends. New digitals tools, such as “big data” and social media, allow greater insight on companies. The financial crisis of 2007-08 exposed more problems in corporations and brought tighter regulations, such as the Dodd-Frank Act of 2010. And as more companies expand worldwide, they run into higher risks of corruption, such as kickbacks and bribery.

But the study’s authors doubt there has been a sharp uptick in unethical behavior. Rather they attribute the increases to a public “more suspicious, more critical, and less forgiving of corporate misbehavior.”

And to prevent reputational damage, companies are becoming better at cleaning up their workplace culture once wrongdoing is exposed. “Our data shows that companies are continuing to improve both their processes for choosing and replacing CEOs and their leadership governance practices – especially in developed countries,” the study states.

The good news is that people may be more aware of lapses in integrity and expect more of leaders in accountability, honesty, and transparency. In other words, the stakes for those who rule over others may have risen, especially as those being ruled see more examples of bad behavior being punished and more executives trying to create an ethical culture in organizations.

In another recent global survey by Edelman public relations firm, 45 percent of people say they trust a business better if it is contributing to the greater good. If more companies sought that greater good, they could more easily instill an ethical culture. The pressure to remove a CEO for lapses can only decline if CEOs become more aware of the public’s rising expectations.

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