More CEOs than ever are getting fired for ethical lapses

VW‘s Martin Winterkorn  faces the music.
VW‘s Martin Winterkorn faces the music.
Image: Reuters/Hannibal Hanschke
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The number of CEOs fired for ethical lapses has climbed dramatically over the last decade, according to PwC, the accounting and consulting firm that compiled the data.

The numbers are still small—only a tiny minority of CEOs are tossed out for ethics violations, compared to other reasons—but they doubled in the US and Canada, to 3.3%, from the four years ending in 2011, to the four years ending in 2016. In Brazil, Russia, and India, the figure nearly tripled—to almost 9%.

Ousted CEOs include high-profile leaders like John Stumpf of Wells Fargo and Martin Winterkorn of Volkswagen, who led companies rocked by massive scandals, and less well-known bosses, like Alexei Orlov, CEO of the RAPP ad agency, who was forced out after being accused of discrimination, including allegedly calling women “fat cows“ (paywall).

But the rise in executives getting the boot is due less to a rise in corporate malfeasance, and more to boards cracking down, PwC says.

In the years following the 2008 financial crisis, governments have stepped up their oversight of business. In the US, the Dodd-Frank Act of 2010 created powerful incentives for whistleblowers, for example, ratcheting up pressure on corporate directors to make sure their leadership teams were beyond reproach. In China, a crackdown on corruption initiated by president Xi Jinping has extended from public officials to business leaders.

The increased scrutiny from regulators brings with it attention from shareholders and media, which is one reason why CEOs at large corporations are much more likely to be ousted than at smaller companies. PwC broke down companies into four quartiles by size, and found twice as many CEOs were fired for ethics lapses from the biggest companies than from any other quartile.

The rapid spread, and wide reach, of social media has also played a role in drawing attention to bad behavior. Boards that once might have tried to let the storm blow over are now quicker to pull the trigger, rather than incur the wrath of clients, customers, and investors.