The days of imperious, dictatorial CEOs who rule by fear and intimidation, backed by board of directors packed with “yes men” and cronies, may be soon over. There is a new trend emerging in the C-suite of corporations that is beneficial to employees and shareholders—CEOs are being shown the door when their questionable ethics pose a threat to the reputation, mission or growth of their companies. Activist investors, Wall Street, employees and the public are sending a sharp rebuke to the brilliant, but flawed CEOs—shape up or ship out. Here’s Jack Kelly’s article from Forbes.com
According to the large accounting and management consulting firm, PwC, a record number of CEOs—18%—were replaced last year. A significant percentage of those executives were pushed out due to ethical lapses.
I recently reported on the questionable activities of WeWork CEO, Adam Neumann, that ultimately led to the relinquishment of his title. Thereafter, Kevin Burns, the CEO of Juul, an electronic cigarette company that found an enthusiastic customer base with young people, suddenly resigned. This was then followed by EBay CEO Devin Wenig’s seemingly sudden resignation due to a conflict with the company’s board of directors.
Burns was ushered out the door—in large part—due to the alarming number of vaping-related deaths and accompanying threats by federal regulators. He will be replaced by K.C. Crosthwaite, who had been chief growth officer at tobacco company Altria, a major investor in Juul. According to the Centers for Disease Control, nine U.S. deaths were tied to vaping and e-cigarettes and 530 cases of lung injuries were associated with the company’s products. “The youth e-cigarette epidemic has gone from bad to worse, and 5 million kids now use e-cigarettes,” said Matthew Myers, president of the Campaign for Tobacco-Free Kids.
According to the Financial Times, Ebay’s Devin Wenig stepped down due to pressure from two activist shareholders, Elliott Management and Starboard Value, who were recently added to its board. Lack of growth in its core marketplace business led to tensions that resulted in his departure. “In the past few weeks, it became clear that I was not on the same page as my new board. Whenever that happens, it’s best for everyone to turn that page over,” said Wenig in a Twitter post.
Investors are becoming increasingly more aware of the problems and risks associated with fast-growing companies in sexy sectors. They are increasingly skeptical and scrutinize the regulatory filings and question rosy growth assumptions and too-large valuations—especially when the companies are hemorrhaging money. The poor performances of the IPOs for Lyft, Uber and Slack concern what will happen with future unicorns, such as Peloton, when they go public.
Travis Kalanick was the founder and face of Uber. He rode the company to a massive valuation of $70 billion. Incredible monetary growth was unable to protect him from his own actions. Uber confronted a federal criminal probe, alleging the use of software to illegally evade regulators. The company was also accused of looking the other way with regards to pervasive allegations of workplace harassment against women and people of color. Uber board members saw Kalanick as responsible for the problems and pushed him to resign.
Overstock.com’s CEO, Patrick Byrne, recently resigned. Byrne cited that the reason for his leaving was due to the distraction and controversy surrounding his involvement in an FBI Russian espionage investigation. It seems that Byrne maintained a personal relationship with a convicted Russian agent, Maria Butina. He has had a tumultuous run with the company. “In his two decades as chief executive of Overstock.com, he tormented short sellers, picked fights with journalists and burned millions of dollars on cryptocurrency projects,” reported the Wall Street Journal.
Outside of the startup culture, Carlos Ghosn, the epitome of old-school, global, corporate elite, was kicked out of his company, Nissan Motor, and arrested. It was alleged that Ghosn conducted a scheme to conceal more than $90 million of his compensation from investors and public disclosure. On Monday, Nissan and its former CEO settled with U.S. regulators on charges alleging he fraudulently concealed more than $140 million in executive compensation and retirement benefits. Nissan has agreed to pay $15 million and Ghosn agreed to pay $1 million to settle the regulator’s civil fraud charges. He also agreed to be barred for 10 years from serving as an officer or director of a public company.
The CEO of Blue Cross Blue Shield of North Carolina resigned Wednesday, months after being charged with a DWI and child abuse. Patrick Conway’s resignation comes after intense pressure from Mike Causey, North Carolina Insurance Commissioner, asking him to step down following the emergence of a video that shows Conway’s SUV swerving through traffic on I-85 with his daughters in the vehicle. The Blue Cross Blue Shield board of trustees released a statement late Wednesday saying, “The Blue Cross NC Board of Trustees has asked Dr. Conway for his resignation. Dr. Conway accepted the request and has issued his resignation effective immediately.”
John H. Schnatter, better known as “Papa John,” founded the eponymous pizza chain and became a household name. Schnatter stepped down as CEO on January 1, 2018, after comments he made in November 2017 criticizing NFL commissioner Roger Goodell for allegedly not doing anything about the national anthem protests by football players. He then resigned as chairman of the board on July 11, 2018, when a scandal broke out over his use of a racial slur when trying to minimize the controversy over his NFL national anthem comments.
Leslie Moonves was one of the most powerful and highest-paid media CEOs, serving as the chairman and CEO of CBS. Moonves was accused by a number of women of sexual misconduct. CBS fired Moonves for cause and fought against him receiving a $120 million severance package.
The activities of the CEOs seem ripped right out of a bad movie. However, it’s encouraging that board of directors, activist investors and others pointed out their misdeeds, pushed for change and were able to dethrone their mercurial, flamboyant and self-destructive CEOs. This is a great pivot away from accepting the rockstar CEO who is above reproach and can get away with anything. This trend toward better corporate governance is good news for employees and investors alike. Employees will be spared the repercussions, such as downsizings, when their CEO goes off the deep end and investors end up feeling like their investments are being prudently watched over.
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