High-profile CEO ousters seemed to dominate the news cycle last year. It felt as though nearly every other week a new scandal rocked the upper echelons of the business world, from industries such as entertainment to healthcare to technology. Indeed, in 2018 alone, revelations about and allegations of sexual assault, harassment, and misconduct led to the removal of the most well-known and successful top executives, such as Leslie Moonves from CBS, Steve Wynn from Wynn Resorts, Brian Krzanich from Intel, and Demos Parneros from Barnes & Noble.
These examples are not merely anecdotal. A new study by the consulting arm of PricewaterhouseCoopers (PwC)—Strategy&—reports that in 2018 more CEOs were dismissed for ethical lapses than for poor financial performance or struggles with their boards. This is the first time in the 19 years that PwC has been analyzing CEO succession among the world’s 2,500 largest public companies that unethical behavior was the predominate cause of CEO removals. Ethical lapses include, but are not limited to, sexual misconduct. PwC defines them as “removal of the CEO as a result of a scandal or improper conduct by the CEO or other employees; examples include fraud, bribery, insider trading, environmental disaster, inflated resumes, and sexual indiscretions.”
Of the 89 forced departures of CEOs that PwC recorded in 2018, 39% were due to ethical misconduct, compared to 35% that were linked to poor financial performance and 13% to conflicts with the board or investors. This is a remarkable shift from a decade ago. During 2008’s financial crisis, 52% of forced CEO removals were tied to financial performance, 35% to board conflicts, and 10% to misconduct. But the state of the economy does not explain these changes. Even six years ago, in 2013, 40% of CEO ousters were the result of poor financial performance, 30% to struggles with the board, and less than a quarter were related to ethical lapses.
PwC notes that the rise of misconduct dismissals reflects “societal and governance trends, including more aggressive intervention by regulatory and law enforcement authorities, new pressures for accountability about sexual harassment and sexual assault brought about by the rise of the ‘Me Too’ movement, and the increasing propensity of boards of directors to adopt a zero-tolerance stance for executive misconduct.” The increasing presence and power of activist investors and employees could also be a contributing factor to this trend.
Men have been at the forefront of these corporate scandals, and there is some evidence women are stepping into the corner office to replace them. For example, Susan Zirinsky was hired as CBS’s first female president to replace Leslie Moonves. The rate of women taking over CEO positions rose in 2018 to 22%, after remaining at 18% in 2017 and 2016, according to a report by Challenger, Gray & Christmas, Inc. But men still represent the vast majority of CEO replacements, and among Fortune 500 companies the number of women CEOs fell 25% in 2018. Less than 5% of Fortune 500 companies are currently led by a woman.
Regardless of gender, standards for corporate leadership appear to be changing. Boards, investors, and employees seem willing to hold executives accountable to not only deliver strong financial results but to also uphold basic principles of honesty, integrity, fairness, and trust.