When a ‘revered’ CEO is accused

Published on 3rd August, 2018, BUSINESS STANDARD

A CEO could evoke reverence from his board of directors for many reasons. It could be any of the 5 C’s: competence, clan, connections, charisma or a combination!

Published on 3rd August, 2018

R. Gopalakrishnan*

Email: rgopal@themindworks.me

*The writer is a corporate advisor and Distinguished Professor of IIT Kharagpur. His new book, “CRASH: lessons from the rise and exit of business leaders” will be published by Penguin India in September 2018.

Email: rgopal@themindworks.me

A CEO could evoke reverence from his board of directors for many reasons. It could be any of the 5 C’s: competence, clan, connections, charisma or a combination! The phenomenon is not rare. As a rule, it is a challenge for any board to deal with a revered CEO. If the CEO is God-like and is under the spell of another Godman, then it is really very tough situation. Think of how the Aztecs lost Mexico under the spell of Huitzilopochtli, Czar Nicholas lost Russia under the spell of Rasputin, or L’Oreal heiress, Liliane Bettencourt, came under the influence of Francois-Marie Banier!

As I write this month’s column, I learn that the board of CBS Corporation will investigate its powerful CEO, Leslie Moonves, for allegations of sexual harassment. The Economist dated 28th July carried a business story titled ‘Horrible Bosses’ about board actions about CEOs’ behavior. Company President, Amy Powell, of Paramount Television was fired in July 2018 by the board for inappropriate behavior. Just a week earlier, Papa John’s founder CEO was removed by the board. In June 2018, Jonathan Friedland of Netflix was sacked. At least fifteen executives have had to depart in well-known firms such as Nike and Bank of America after the MeToo movement. In the immensely successful advertising group, the board had to remove the founder, Sir Martin Sorrell, for his behavior and practices. Such departures are not necessarily about financial impropriety, rather they are about indiscretions, big ones, as perceived–of conflict of interest, cultural fit, propriety or social behavior with colleagues.

Are bosses becoming unethical or insensitive compared to before? My instinct is that is not so. In fact, according to a PwC report of 2017, it is not so. The hard truth is that the transgressions of today are no more acceptable. What was alright then, is no more alright.

CEOs need to understand this reality. If a Harold Geneen or Jack Welch were to operate as a CEO today in the same way as reportedly they did decades ago,, their behavior and style would likely be unacceptable. Bosses are being held more accountable by the board for their behavior and language with colleagues. Directors want to encourage a healthy and squeaky-clean company environment; in this way, directors also avoid getting sued themselves; directors need to protect the corporate brand, which has been built over a long period.

A research study in 2016 by Stanford University showed that the consequence of injurious behavior by CEOs attracts huge media attention and the negative effect on reputation festers for long. Before allowing dust to be kicked up in the public domain, boards and CEOs must consider the severe damage to corporate brand and image. CEOs are hung in the court of public opinion long before the courts of law arrive at a

view. Boards feel pressured to act soon and in a manner which not only meets legal requirements, but also meets with public approval. It is a tough act.

A response like, “Leave it to the board. We have investigated, nothing is wrong, but regret that further details cannot be revealed, “ will no more pass muster. I am aware of even a sports club in Mumbai where such a situation has arisen, thus causing unrest among members.

Our defence forces have inherited colonial processes of a formal and transparent procedure for enquiry, escalation and court martial. In corporations, however, the response process appears to be flexible. Companies need a far more formal internal code of behavior and an enforcement of the code—regrettably, this is lacking in even some big companies. The code must be based on cultural factors in addition to laws.

Consider Rama and his most revered Sita after her rescue from Lanka. His joy of victory was disrupted by a public undercurrent that questioned Sita’s purity in the socio-cultural context of those times. On the one hand, was it at all fair for the public to expect Sita’s purity to be proven? Should Rama have even heeded such public gossip? On the other hand, given that true north leadership requires public figures to be above board and also be seen to be above board, did Rama have a choice about subjecting Sita to a test?

In the Ramayana, Sita underwent a controversial agni-pariksha. The conduct of Rama has been a subject of much debate. Company boards are now having to subject an accused CEO to an agni-pariksha. More on this subject in my September column.

SHARE