Lapses in ethics and judgment that have caused more CEOs than ever in business history to go down.
Which explains why, when Strategy& (a division of PwC), released their annual global CEO study for 2016, they focused on this rising phenomenon.
They zeroed in on the world’s 2,500 largest public companies and their senior business leaders.
Last year, out of those 2,500, there were 18 cases of CEO removal “as the result of a scandal or improper conduct by the CEO or other employees” (Strategy&’s definition).
Mostly due to ethical issues such as:
- Insider Trading
ONLY 18 CASES OF UNETHICAL CEOs?
On face value, it sounds irrelevant. Yet even this seemingly small number of ethical issues at the highest echelons of business leadership indicates a significant shift.
Globally, CEO removals for ethical breaches rose 36% between 2007 and 2016. If you just look at North America and Western Europe, the increase is 68%.
But is there actually more corporate corruption happening now versus, say, 15 years ago?
Interestingly, the study admits there’s no conclusive way to tell. What’s more, based on their experiences working with large corporations, they doubt it.
In fact, their research shows that most companies (especially in North America, Western Europe and other developed countries) are improving their leadership governance practices – and that real number of ethical issues amongst senior business leaders is falling).
THE INCREASE IS ABOUT CONTEXT.
The world has changed dramatically in the last 15 years. The study distills it down to five major trends. As an added bonus, I’ve included relevant examples for each.
1. PUBLIC OPINION HAS CHANGED.
According to the 2017 Edelman Trust Barometer, only 37% of people consider CEOs credible today.
Specifically in America, where the political climate is deeply divided, 75% of Americans say CEOs should avoid taking a position on political issues and should be held more accountable.
2. REGULATIONS ARE STRICTER THAN EVER.
Consider Dieselgate – the Volkswagen scandal that began with the discovery of a diesel emissions “cheat device” and ended with German prosecutors raiding their headquarters earlier this year.
The big remaining question is whether or not CEO Matthias Müller kept investors in the dark to protect the stock price.
3. EMERGING MARKETS ADD COMPLEXITY.
While UBER isn’t a public company (yet), its negotiations with regulators around the world are nothing short of artful.
Essentially, they launch a pilot program and wait for the sparks to fly. Next, they press the local government to accept their service as a public need.
Case in point: After a female passenger was raped in Delhi, knee-jerk bans spread across India’s major cities. Eventually, however, UBER won out in the end.
4. SOCIAL MEDIA INCREASES EXPOSURE…
On April 9, 2017, Dr. David Dao was dragged, bloodied and screaming, by aviation officers from an over-booked United Airlines flight.
Other passengers recorded the incident on their phones and shared it all over social media. While United CEO Oscar Munoz was quick to apologise for the incident, he wasn’t forthcoming with answers for the Senate Committee Hearing.
As a result, despite his employment agreement, United’s board ruled that Munoz will not be promoted to the Chairman role in 2018.
5. …AND GIVES A VOICE TO WHISTLEBLOWERS.
As though the United story weren’t enough to prove this point, let’s revisit UBER.
An exposé by a former female engineer put a spotlight on entrenched ethics issues in UBER’s business and was the beginning of the end for Travis Kalanick.
What fascinates is that despite all that followed (trips to Korean escort bars, the ousting of employees linked to harassment allegations, an IP lawsuit, the #deleteUber movement) Travis reigned as long as he did – AND is still on the board.
That said, Susan Fowler’s blog hints at another trend the Strategy& study failed to acknowledge.
MORE EMPLOYEES ARE SPEAKING UP.
According to a NAVEX Global study, reports of ethics issues in business have risen over 50% since 2016. Just a few prominent examples:
- Wells Fargo made all the wrong headlines when excessive pressure on employees to sell new accounts resulted in fraud. New CEO Tim Sloan fessed up when he said it was finally time to put employees before shareholders.
- THINX CEO Miki Agrawal resigned after employee reports of sexual harassment and a toxic work environment. Since THINX is a startup, Agrawal admitted there was little HR presence in the culture.
- And then there’s Fox News. Last year, Gretchen Carlson was the first of many to speak up about being sexually harassed by then CEO Roger Ailes. Ailes resigned, and died earlier this year.
So, besides creating a bulletproof compliance and ethics framework and working in lockstep with HR on impactful decisions and controversial issues, how can CEOs today hold their heads high?
FOCUS ON BEHAVIORS AND VALUES.
The leadership consultancy ghSmart conducted a 10-year study called the CEO Genome Project.
So far, they’ve profiled 17,000 C-Suite executives, including over 2,000 CEOs.
While the researchers admit there is no “one size fits all” approach to CEO success in today’s climate, they did pinpoint four essential behaviors that seem to distinguish the winners from the losers.
IN TODAY’S WORLD, THE MOST ETHICAL CEOs:
- Decide With Conviction and Speed. According to former Greyhound CEO Stephen Gorman, who led the bus operator through a turnaround, “A bad decision was better than a lack of direction. Most decisions can be undone, but you have to learn to move with the right amount of speed.” Think back to what happened to Munoz.
- Practice Relentless Reliability. When Scott Clawson became CEO of water treatment company Culligan, he inherited a struggling business believed to have an EBITDA of $60 million. He soon realized the figure was closer to $45 million. After much pushback, he led a revamp that has exceeded board and investor expectations ever since.
- Are Relationship Masters. The best CEOs give people a voice, but not necessarily a vote. Christophe Weber, CEO of Takeda Pharmaceutical, has open forums with a handful of his high potentials before making key decisions. He asks to be challenged with new perspectives while making it clear he’s the final decision-maker.
- Are Proactive In Adapting to Changing Circumstances. Atlassian co-founder and co-CEO Scott Farquhar said it’s easier to build a big company than a long-term company. He believes that today, only the most adaptable companies are going to survive. His advice for building a long-term company? Establish your culture as your foundation. With that in place, you can bend and flex to face anything.
Last but not least, I’ll throw in one more success factor.
Yes, Travis Kalanick has nothing but passion for UBER’s business.
But as his business ethics track record indicates, could it be that something different is required—such as a passion for the CEO role itself—with full awareness of its inherent potential for long-term impact?
Indra Nooyi, CEO of Pepsico, who writes thank you letters to her employees’ parents, puts it this way:
“I think it’s not a job. If you want to be CEO of a large company or any company, it’s got to be a passion; it’s got to be your calling. You’ve just got to love what you’re doing, believe in what you’re doing, and say to yourself, when I feel like I’ve done enough with this company, I want to leave feeling great about my contributions and the legacy I’m leaving behind.”
What do you think of business ethics in the boardroom today? I’d love to hear.