by Vanessa Fuhrmans
Ethical breaches are causing more chief executives to lose their jobs. The upside? Researchers say the rising numbers don’t point to more corporate misbehavior: It’s that CEOs are being held to a higher level of accountability.
Among the myriad reasons corporate bosses leave their jobs, firings have been on the decline. In a study of CEO exits at the world’s 2,500 largest public companies, researchers at PricewaterhouseCoopers LLP’s strategy consulting arm, called Strategy&, found 20% of CEO exits in the past five years were forced, down from 31% of CEO exits in the previous five years.
But CEO ousters due to ethical lapses—either their own improper conduct, or their employees’—are climbing. Such forced exits rose to 5.3% of CEO departures in the 2012-to-2016 period, up from 3.9% during the previous five years.
To confirm the reasons for CEO turnover, the Strategy& consultants cross-referenced company disclosures on CEO departures with news reports and their own interviews with sources inside or familiar with the companies. An announced resignation was counted as an ouster if it was established the CEO left under pressure.
Bosses of large companies appear more likely than their counterparts at smaller companies to be ousted due to scandal. Among the largest North American and European companies by market value, the share of corporate chieftains forced to leave because of ethics lapses rose to 7.8% of CEO departures between 2012 and 2016, compared with 4.6% the previous five years.
Per-Ola Karlsson, a Strategy& partner, said it is unlikely that companies are involved in more wrongdoing. The rise of social media, waning public trust since the 2008 financial crisis and more-stringent regulation are making bosses more accountable.
Those forces are pushing besieged CEOs out of jobs sooner rather than later, says Patrick Quinlan, CEO of ethics and compliance software company Convercent. “Even a decade ago, [a board] might have slowly pushed the CEO out,” he says. “You can’t do that now because of the internet.”
Embattled Wells Fargo & Co. CEO John Stumpf, for instance, announced his immediate retirement last fall, one month after regulators hit the bank with a fine for improper sales tactics and disclosed that 5,300 employees had been fired in recent years for the practices. In congressional hearings last fall, Mr. Stumpf apologized and took responsibility for the scandal.
In 2015, Volkswagen AG CEO Martin Winterkorn resigned days after the car maker’s emission-cheating scandal broke. Mr. Winterkorn has said he wasn’t aware the company had used software to cheat on diesel-emission levels.