CEO behaviour can destroy your brand’s reputation

CEO behaviour, including #MeToo related revelations, is impacting brands' reputations, and their bottom lines. Tony Jaques explains why CEOs are proving to be such a liability, and what companies can do about it.

Two weeks ago, the board of McDonald’s had the embarrassing task of sacking their CEO for a consensual but inappropriate relationship with a female employee. The board said Steve Easterbrook had “demonstrated poor judgement” and the former CEO himself told staff he agreed and that it was time for him to move on.

But it’s also time to recognise that such events are not uncommon, and have a real impact on the brands such CEOs represent.

Just last year, Intel boss Brian Krzanich stepped down for having an extramarital affair with an employee against company rules. And let’s not forget Uber founder Travis Kalanick, forced out over numerous allegations of abuse and sexual harassment. Dov Charney, founder and CEO of American Apparel, was ousted for alleged sexual harassment of employees. David Jones CEO Mark McInnes left after inappropriate behaviour towards a female employee. And Seven West Media boss Tim Worner, whose relationship-turned-sour with a former employee, dominated the headlines for months in 2017.

Of course, that’s just a small sample – and only those which were publicly disclosed. From a reputation and issue management perspective, in a #MeToo world, the questions are: Is such behaviour becoming more common? What’s the impact on the company? And what can be done about it?

One long-term study by PwC showed that companies have, in fact, become more likely to dismiss their CEOs over scandal and improper conduct, such as fraud, bribery, insider trading, inflated resumes and sexual indiscretion. According to the study, reasons for the trend include: an increasingly suspicious public, more proactive governance and regulation, risks in emerging markets, the rise of digital communication, the 24/7 news cycle, and media amplification of negative stories.

Moreover, the impact is not just temporary embarrassment. There can be very real financial impacts. Think no further than Harvey Weinstein, whose misbehaviour and arrest led to the virtual destruction of the company he co-founded. Another well-documented case is when Hewlett Packard CEO Mark Hurd resigned after misusing his expenses to support a relationship with a female contractor. The company’s shares fell by US$10bn in a day and more than US$14bn over four days.

Such losses are not isolated examples. An American study of 219 cases of arrests, lies or extramarital affairs of CEO and other top executives showed an average share value loss of US$226m in the three days after the revelation. Furthermore, the stock prices of such companies fell in total between 11 and 14% in the subsequent 12 months. Worryingly, they also found that 65% of the accused executives retained their positions, including those with repeat offences.

Most importantly it’s not just the public and stockholders who are concerned about executive behaviour. A British study of 508 managers found that 40% believed their own higher management was the single biggest risk of a PR crisis. And 30% specifically identified the CEO, and their reputation, as putting them at risk of a crisis.

So what can be done? Some badly behaving CEOs are unrepentant serial offenders who simply need to go. But, in other cases, there are some steps which may limit reputational damage.

We know from research that most crises are preceded by red flags and clear warning signs. And the most troubling statistic above is that 30% of managers think their own CEO is putting the organisation at risk of a PR crisis.

If that’s true, then companies need more careful executive recruitment, better risk assessment, better codes of behaviour, better upward communication, better whistle-blower protection and much better planning for crisis prevention.

Tony Jaques is the director of Issue Outcomes


Get the latest media and marketing industry news (and views) direct to your inbox.

Sign up to the free Mumbrella newsletter now.



Sign up to our free daily update to get the latest in media and marketing.