When a leader of a company shows poor judgment or behaves in a way that goes against the law or social norms, it can devastate the entire reputation of a business through executive misconduct. When the issue stems from the CEO, it can be downright game-changing. With a reputational issue like executive conduct, a company’s reputation and financial well-being are on the line. Wall Street’s support for a company is in part determined by confidence in the leaders of a business.
There are countless examples of the impact executive misconduct can have on an organization. The two most common – that every company can bank on as a risk – are financial and sexual matters.
Financial case: Wells Fargo. Most recently, John Stumpf, the now-former CEO of Wells Fargo was in the spotlight for his handling of the bank’s sales tactics, which led to millions of accounts being opened without customer approval or knowledge. The scandal revealed that the inflated sales numbers increased the bank’s business performance and created wealth for its leadership. The scandal resulted in fines at a whopping $185 million, reimbursements to customers totaling $5 million, and the termination of 5,300 workers. The fate of John Stumpf was an early retirement without severance and forfeiture of $41 million. He was publicly humiliated by both democrats and republicans and condemned for “gutless” leadership.
As an analyst from explained: “The ramifications of such situations can be catastrophic – if not handled properly – for the company as a whole, making its reputation spiral downwards affecting stock value not only for current shareholders but also reducing possibilities of attracting new investors.”
Financial mishandling is one of the most common executive misconduct issues. From bribery, misappropriating funds, personal use of business dollars or transportation, or a scandal to inflate business performance. All are inappropriate and can run a well-performing company into a stunning decline.
Sexual case: Fox News. This is a longstanding issue that continues to plague leaders at the top. Most recently, 21st Century Fox was in the limelight for a sexual harassment and retaliation lawsuit brought by Gretchen Carlson, former Fox News anchorwoman, against Roger Ailes, former Fox News CEO and chairman. The result was not only a $20 million settlement and the resignation of Ailes, but it also spurred over twenty additional allegations and complaints that could cost the company much more.
Erosion of CEO leadership means no one is steering the ship – and that makes investors squeamish. This type of issue ignites concern broadly – from the board of directors to employees. All around, it is bad for business.
As the saying goes, “It takes 20 years to build a reputation and five minutes to ruin it.” It may not be fair, but it is the way human minds work. It is well documented that the human mind tends to turn a positive image of someone into a negative than the other way around. If you don’t like someone, hearing positive comments about them is unlikely to improve your opinion by much. However, if you think highly of someone and then hear a negative opinion of them, you are much more likely to think more negatively of them. And, following the same pattern, once a negative impression has been made, its really very difficult to turn it around.
Since your company reputation is tied to your leadership, that means their actions are your risks.
How can companies protect themselves from individual bad decisions?
- Screen prospects. It is shocking to see the number of executives terminated for sexual harassment and other illegal acts, but who then go on to find another high powered job – typically in another state with another company. Hiring firms and leaders need to do their research – it’s a small world and finding this type of information is not that difficult. Do not hire someone that has shown poor behavior – it is asking for the same situation to happen to your company and it also shows acceptance for whatever behavior they did.
- Set standards. There are enough examples of how badly executive misconduct can impact a company’s reputation to justify a set of written code of conduct policies that executives must read and sign each year. It may sound cumbersome, but signing a policy is similar to taking an oath. People remember what they promise and it serves as a regular reminder that a behavior is unacceptable and that there are severe consequences. The code of conduct should make it clear: Our reputation is tied to you. So your personal actions aren’t just yours, they reflect on all of us. The wellbeing of our board, shareholders, employees, and livelihoods depend on you behaving in an admirable manner.
- Show unification, but also division. Most companies want their CEO to be the face of the organization internally and externally. This is common and normal. However, what is not normal, is hanging on to that sense of team once the CEO or executive has broken its commitment to the company’s code of conduct. Breaking ties immediately once the behavior is shared protects your reputation and shows transparency.
- Act Swiftly. What’s good for the gander is good for the goose. Poor decisions of many CEOs and executives are overlooked or hidden because of the financial benefit of burying the issue. Like professional athletes or famous actors and actresses, we sometimes have different expectations or responses that would normally be expected. That treatment needs to end – executive misconduct should be treated with that same swift, fair, damning response that anyone else would receive. Communicate to employees and media that an executive was terminated for poor behavior. This sets the stage for what is acceptable to others – internally and externally.
Part of the rise in attention to executive misconduct is attributed to social media – the juicy news stories spread faster than ever and public sentiment is easier to measure than ever before. To properly know public sentiment about an incident at your company, it is important to listen to what is being said.
Click here for more information on the importance of monitoring and how to respond when a crisis occurs.
Can we help you?
Building an effective crisis management process that incorporates crisis management, crisis communications, and other functions within your firm is what we do here at Bryghtpath. Such a process can help you weather the storm when you encounter an executive misconduct issue.
Bryghtpath has built the crisis management plans and frameworks for many Fortune 500 organizations, non-profits, and public sector agencies. Our firm has more than a century of experience in developing actionable plans to help prepare organizations for the unexpected. Learn more about our approach to Crisis Management in our Ultimate Guide to Crisis Management.
We also offer a free Crisis Communications 101 Intro Course that provides additional context in managing through situations like Executive Misconduct.