Corporate executives who are supposed to help prevent a crisis can be the same people who, because of their misconduct, are responsible for causing a crisis.
If details about that misconduct goes public, what company officials are alleged to have done behind closed doors—and how organizations responded to those allegations— can play out in front of a national or international audience. Some forms of misconduct are more obvious and public than others, and can make national headlines. Last month CNN reported that the CEO of Illinois-based Cogensia was arrested for storming the U.S. Capitol on January 6.
A Proactive Approach
Rather than wait until an executive gets themselves or their companies into hot water, some businesses are being proactive in protecting their bottom lines.
As reported yesterday by the Wall Street Journal, “Companies are withholding more of their top officers’ pay for longer, hoping to avoid the hassle of recouping money when—or if—executives are later found responsible for misconduct.” Examples cited in the story include Bristol-Myers Squibb Co. and drugstore chains CVS Health and Walgreens Boots Alliance. CVS is also holding back some pay even after an executive leaves the company, according to the report.
A Poor Defense?
Executive coach Leslie Austin claims that withholding compensation as a possible shield against future misconduct by CEOs, “… is not a particularly effective prevention measure, as it only addresses the fiscal issues involved.
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“While it may be fiscally prudent, it does not address the central problem: boards often ignore the early behavioral signs that a CEO may be establishing and modeling a corporate culture which rewards unduly aggressive, narcissistic behavior under the false premise [that] the ends (increasing profits) justifies the means,” she said.
Potential For Harm
“The life of a CEO is always under scrutiny, and the personal behavior of a CEO is viewed (rightfully or wrongfully) as a barometer of the stability of the company that he or she leads,” noted Patricia M. Barbarito, a co-managing partner and matrimonial lawyer at Einhorn, Barbarito, Frost & Botwinick.
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Indeed, a CEO’s actions and words have the potential to inflict serious harm on organizations. Depending on the nature of the misconduct, a company’s image, reputation, bottom line, and relations with stakeholders can be at risk.
“Recent examples of high profile misdemeanors by chief executives including Ted Baker’s Ray Kelvin and CrossFit’s Greg Glassman show the enormous corporate harm that can be done by business leaders,” according to Jonathan Hemus, managing director and crisis management consultant at Insignia, a crisis communication company.
“Indeed, these human crises have the potential to do far greater damage to value and reputation than a conventional crisis such as a product recall, industrial accident or even a cyber attack,” he said.
“To be truly crisis resilient,” Hemus noted, “businesses must confront the potential for executive misconduct, include it in their risk register, and prepare for it as part of their crisis planning. This is a task which should be championed by the board and embraced by the senior management team. Uncomfortable it may be, but failing to do so leaves a business open to the most challenging crisis types of all.”
Protecting Their Brand
The sooner an organization responds to allegations of a CEO’s misconduct, the sooner it will be able to defend its brand.
Stacy Rosenberg, an associate teaching professor at Carnegie Mellon University’s Heinz College, recalled, “In July 2018, CBS chairman and CEO Leslie Moonves was accused of sexual assault. The board launched an independent investigation, issued a clear statement, replaced Moonves, and withheld $120 million in exit payout funds.
“These swift decisions separated the actions of the CEO from the media network—which helped protect their brand and demonstrate that sexual misconduct will not be tolerated at any level of the organization,” she said.
Boards that fail to move quickly when the see a CEO doing something wrong or questionable do so at their peril. According to Bloomberg, today investors filed a lawsuit against Boeing Co. charging the board “…failed to challenge then-Chief Executive Dennis Muilenburg on the safety of the 737 MAX or his campaign to counter negative news reports between two fatal crashes that claimed 346 lives.”
Companies should not allow employment agreements to excuse the misconduct of their leaders.
“Though contractual protections are important, there is no substitute for realism on the part of board members,” according to Mitchell S. Muncy of Prospera, a crisis and executive management firm. “No hiring process or employment contract can substitute for a willingness to recognize bad behavior for what it is and to act promptly.
“In my experience, board members delude themselves about what they’ve seen or heard about a CEO’s behavior far more often than they’re simply ignorant of it. A board almost always has sufficient time to act before the crisis is upon them,” he said.
Muncy noted, “One of the rules I give board members is ‘Things are exactly as they appear.’ If they identify something in a CEO’s past or current behavior that strikes them as a problem, the chance that their instincts are wrong is negligible. On the contrary, bad CEO behavior is like icebergs and cockroaches: You ought to presume that what you see is a tenth of what there is.”
Signs Of A Larger Problem
The misdeeds and misbehavior of high-level company officials may be a sign of deeper problems and issues at an organization.
Pam Harper chairs Griesing Law’s corporate transactions and compliance practice group. She observed that, “CEO misconduct is a reflection of a lack of accountability at the board level. As long as boards continue to overlook unethical behavior, misconduct will continue to occur. It is exacerbated by the fact that the universe for directors is finite, turnover is low, and the network from which new members are drawn is often driven by personal relationships.
“These personal relationships ultimately affect board dynamics—the willingness to dissent, dissect, drill down to a granular level and ask uncomfortable questions. As a result, boards that are independent in theory, but not in practice, are ripe candidates for CEO misconduct. Expanding and diversifying the networks from which new board members are identified is imperative to enhance independence,” she said.
Casting A Wide Net
Some organizations have made detecting and discouraging misconduct a company-wide endeavor.
AllVoices is a a platform that enables employees to speak up anonymously about misconduct in their companies and allows company leaders to track and manage the allegations, according to CEO Claire Schmidt. The platform is being used by organizations including GoPro, Wieden+Kennedy, FabFitFun, TrueCar, and Thrive Market.
“The number one step a company can take to identify misconduct more quickly is to provide an anonymous reporting channel for employees to safely speak up,” she said. “This channel is often monitored by not only executives within the company, but even the board, who has oversight into the internal practices in the company and is responsible for ensuring executives are behaving ethically.”
The platform, according to Schmidt, enables company leaders and boards to learn about misconduct much more quickly and can take proactive action to address it in real time. “This can reduce the effects of misconduct significantly and protect organizations from financial losses, reputational damage, and improve their ability to retain employees,” she said.
Source : https://www.humanresourcestoday.com/human-capital-management/?open-article-id=15342321&article-title=best-hr-metrics-for-human-capital-management&blog-domain=workology.com&blog-title=workology