Harvey Weinstein is also a jerk. That alone should have gotten him fired. – The Washington Post

Emily Yoffe writes about the corporate governance failure at The Weinstein Company. She says even in the almost unthinkable case that the board and executives did not know about his constant sexual harassment and abuse (reportedly, his employment contract explicitly recognized it), they did know enough about his public inappropriate behavior to recognize that, as the company’s public presence, he was a huge potential liability.

What is undeniably true is that Harvey Weinstein’s abhorrent public behavior, toward men and women, in front of witnesses, should have forced his business partners to take serious action against him years ago. If they had, it’s possible that many people would have been saved from his attacks, including the women he assaulted in private — and the spectacular dissolution of the Weinstein Company wouldn’t be a business school case study in how ignoring the bad acts of a key employee can wipe out the whole operation.

Source: Harvey Weinstein is also a jerk. That alone should have gotten him fired. – The Washington Post

The truth about Jeff Immelt and General Electric’s corporate jets

VEA Vice Chair Nell Minow was asked to comment on reports that former GE CEO Jeff Immelt not only flew in a corporate jet but on some trips had a second GE jet follow with no passengers in case he needed a back-up.

Corporate governance hawk Nell Minow told CNBC it is difficult to know how many global companies use similar practices.Many companies have shifted to using fractured ownership of private jets, which makes oversight more difficult.

“Whatever benefit General Electric saved or extra layer of security they achieved, it was not worth the hit to their reputation,” Minow said.

Source: The truth about Jeff Immelt and General Electric’s corporate jets

Update: Trump’s Business Councils Disband in Light of His Support for Racist Groups

The New York Times reports that there was something of a race between the CEOs who wanted to abandon ship from President Trump’s business advisory councils and the President, who wanted to shut them down before there could be any more embarassing defections.

President Trump’s main council of top corporate leaders disbanded on Wednesday following the president’s controversial remarks in which he equated white nationalist hate groups with the protesters opposing them. Soon after, the president announced on Twitter that he would end his executive councils, “rather than put pressure” on executives.

Rather than putting pressure on the businesspeople of the Manufacturing Council & Strategy & Policy Forum, I am ending both. Thank you all!

— Donald J. Trump (@realDonaldTrump) Aug. 16, 2017

Moreover, the panels have not been seen to be particularly effective. After a few high profile events for the groups early in the Mr. Trump’s presidency, there have been few meetings since, and none more are planned.

“So far they haven’t done much,” Ms. Admati said. “They had a few meetings with a bunch of fanfare, but it was more symbolic than anything else.”

It’s a dangerous time to be a bad CEO – The Washington Post

In its annual report, released Tuesday, the Conference Board found that among Standard & Poor’s 500-stock index companies that were in the bottom group of performers — as ranked by their total shareholder return — the CEO succession rate jumped five percentage points, from 12.2 percent in 2015 to 17.1 percent in 2016. That’s well above the 13.9 percent average over the past 16 years, said Matteo Tonello, the Conference Board’s managing director of corporate leadership, and the highest rate since 2002, when 21.2 percent of S&P 500 companies made a change at the top.

Source: It’s a dangerous time to be a bad CEO – The Washington Post

PwC’s Strategy&: CEOs Increasingly Fired for Ethical Violations

VEA Vice Chair Nell Minow writes in Huffington Post:

PwC’s Strategy& released its annual CEO Success Study on Sunday, May 14, 2017. This year’s study explores the rise in the number of CEOs at the world’s 2,500 largest companies who were dismissed from their posts due to ethical lapses.

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As companies like FOX, United, Wells Fargo, Yahoo and VW are scrutinized for corporate wrongdoing, the study found that the share of CEOs forced out of their jobs due to a scandal increased globally– with a notably dramatic increase at companies in the U.S. and Canada. Specifically, the report found:

  • Forced turnovers due to ethical lapses rose from 3.9 percent of all successions in 2007–11 to 5.3 percent in 2012–16 — a 36 percent increase. On a regional basis, the share of all successions attributable to ethical lapses rose sharply in the U.S. and Canada (from 1.6 percent of all successions in 2007–11 to 3.3 percent in 2012–16), in Western Europe (from 4.2 percent to 5.9 percent), and in the BRIC countries (from 3.6 percent to 8.8 percent).
  • In the U.S. and Canada, forced turnovers for ethical lapses at these companies increased from 1.6 percent of all successions in 2007–11 to 3.3 percent in 2012–16 — a 102 percent increase
  • The share of incoming women CEOs increased globally to 3.6 percent, rebounding from the previous year’s low point of 2.8 percent

Per-Ola Karlsson, DeAnne Aguirre, Kristin Rivera, and Gary L. Neilson, who prepared the report, identified increased public scrutiny and pressure, the rapidity and influence of digital-era feedback, and post-financial crisis regulatory requirements as primary factors in the increase of CEO departures for ethical concerns. The report does not examine the impact of an ethics-based departure on compensation or the correlation between board or shareholder composition and likelihood of such a termination.

In an interview, the authors explained their definition of “ethical lapse” and discussed the impact of social media and the difference between US/Canada CEOs and those in other countries.

What constitutes an ethical lapse for purposes of this study?

An ethical lapse might include fraud, bribery, insider trading, environmental disasters, inflated resumes, and sexual indiscretions. In the context of dismissals, we define an ethical lapse as a scandal or improper conduct by the CEO or other employees that results in the removal of the CEO.

It should be noted that in many cases, even though the CEO was ultimately held responsible, it was other employees who committed ethical lapses.

Are CEOs replaced for ethical lapses most likely to be insiders or those brought in from outside?

We found that there was no statistical difference in the dismissal rate for ethical lapses between insiders and outsiders. We did find that CEOs forced out of office for ethical lapses had longer median tenures than CEOs forced out for other reasons (6.5 years compared to 4.8). One possible explanation is that companies with long-serving CEOs tend to be those that have been achieving above-average financial results, and thus may attract less shareholder and media scrutiny than companies that have been performing poorly. Another is that when an organization’s leadership is static, employees may begin to see ethical lapses as normal, and allegations of misconduct are less likely to be raised, investigated, or acted on.

How has social media put pressure on boards to replace CEOs?

Today, social media plays a large role in not only disseminating negative or embarrassing information about a company, but also allows customers and other parties to directly voice their displeasure to the company and its executives. Often times, the social media backlash becomes a story in itself beyond the negative or embarrassing information which puts extra pressure on boards who may feel they need to implement change in order to take the company out of the negative spotlight.

How does the US compare to other countries in the rates and reasons for CEO dismissal?

In 2016, The U.S./Canada has a CEO turnover rate of 14.2% compared to 15.3% in Western Europe, 15.5% in Japan, and 14.9% globally. Removing, M&A 29% of turnovers in the U.S./Canada were forced compared to 38% in Western Europe, 13% in Japan, and 29% globally. Historically the U.S./Canada has had a lower CEO turnover rate than other regions which is likely due to the fact that companies in the U.S./Canada have more developed governance and succession practices.

In addition, we note in the study this year that companies in the U.S./Canada have the lowest incidence of ethical lapses. Similar to the point about governance and succession practices, companies in the U.S./Canada tend to have more stringent regulation and internal controls than other regions.

What did your study show about women CEOs?

Globally, companies appointed 12 women CEOs in 2016—3.6 percent of the incoming class. This marks a return of the slow-moving trend towards greater diversity—and a recovery from 2015’s recent low point of 2.8 percent.

The share of incoming women CEOs was highest in the U.S. and Canada—rebounding to 5.7% after falling for the previous three years.

We stand by our belief that as much as a third of incoming CEOs around the world will be female. Some of the trends we cited in the 2014 study that supported this findings were: increasing amounts of women on boards, increasing women undergraduates and MBAs, and changing social norms.

What role does shareholder pressure play in replacement of CEOs?

Boards have become much more independent and very infrequently in a position of deferring to the imperial CEO of yesterday. They listen. They listen to shareholders, regulators, other managers. Shareholders don’t want distractions. Our analysis has shown forced CEO turnovers (for ethical lapses or other reasons) are hugely expensive. We found that, on average, forced turnovers cause a hit of $1.8 billion in shareholder value compared to planned transitions. So, by getting ahead of problems, even when they happen, Boards have the incentive to deal with…. ideally in a “planned” way, even if the change wasn’t part of the individual CEO’s plans!

Why C.E.O.s Are Getting Fired More – The New Yorker

James Surowiecki writes in the New Yorker:

Business professors once talked about “the imperial C.E.O.,” but, increasingly, we’re in the era of what Marcel Kahan, a law professor at N.Y.U., calls “the embattled C.E.O.” He told me, “Big shareholders and boards of directors have more power, and are more willing to use it. And C.E.O.s have been the net losers.” The breakdown of the old order began more than thirty years ago, but things have accelerated since the turn of the century. The Sarbanes-Oxley Act, passed in 2002, required greater disclosure to investors, and increased the independence of corporate boards. “In the old days, boards were often loyal to the C.E.O.,” Charles Elson, a corporate-governance expert at the University of Delaware, told me. “Today, they’re more loyal to the company.” The rise of activist investors—who campaign aggressively for change when they’re not satisfied with performance—has exacerbated the trend. One study found that when activist investors succeed in winning seats on the board of directors the probability that the C.E.O. will be gone within a year doubles.

Source: Why C.E.O.s Are Getting Fired More – The New Yorker

New Wells Fargo CEO has ‘one-week window’ to prove he’s right choice, critic says – LA Times

VEA Vice-Chair Nell Minow is quoted in the LA Times story about the new CEO at Wells Fargo:

Nell Minow, vice chair of ValueEdge Advisors, which promotes strong corporate governance, said the question of whether Sloan came from inside or outside Wells Fargo’s ranks is less important than his need to move fast to restore the bank’s trust with customers, investors and employees.“We’re going to know very quickly whether he’s the right choice or not. He has a one-week window,” she said.Among other things, Sloan must personally visit Wells Fargo’s largest institutional shareholders and its largest banking centers to listen to the concerns of investors, employees and customers and then respond to them, Minow said.

Sloan also should say Wells Fargo will “add new people to our board and ask investors to suggest candidates,” review the performance of other top Wells Fargo executives “to determine whether they can continue to work there” and even be the face on Wells Fargo’s television commercials, Minow said.

Sloan also must vow to conduct “a very rigorous examination of its system and make the results of that public,” Minow said. “If he doesn’t do all of those things, he was the wrong choice.”

Source: New Wells Fargo CEO has ‘one-week window’ to prove he’s right choice, critic says – LA Times