In summer 2016, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 1,554 individuals to understand how the American public views CEOs who engage in potentially unethical behavior, and the public’s determination of “fair punishment” for these actions. The study reveals that almost half of Americans believe CEOs should be fired (or worse) for unethical behavior. Violations of trust between company and customer are considered the most egregious. And, the public is surprisingly critical of CEOs who engage in “immoral” personal actions. Key Takeaways: Almost half of Americans believe CEOs should be fired (or worse) for unethical behavior., Violations of trust between company and customer are considered most egregious., The public is surprisingly critical of CEOs who engage in “immoral” personal actions. “We find that the public is highly critical of — and very willing to fire — CEOs who engage in behaviors that are morally or ethically questionable, even if these actions are not illegal and in some cases even if they cause no obvious harm to shareholders, employees, or the public,” says Professor David F. Larcker, Stanford Graduate School of Business. “This reflects, in part, the public’s lingering distrust of large corporations and CEOs in general.” “It is not surprising, after years of stories in the press about CEOs getting away with bad behavior and in some cases earning large financial rewards along the way, that many Americans want to see higher levels of accountability,” adds Nick Donatiello, lecturer in corporate governance at Stanford Graduate School of Business. “For corporations and their boards, this signals that the reputational ramifications for CEO misconduct — even personal misconduct — are very high, and require a decisive and public response.” “The public’s highly negative assessment of immoral behavior is particularly unexpected,” says Brian Tayan, researcher at Stanford Graduate School of Business. “While we might expect that lying to the public about the quality of a company’s product would be criticized, the public was surprisingly judgmental about CEOs who make questionable personal decisions, such as having an affair with a subordinate. The line between ‘personal’ and ‘corporate’ matters is more blurred than we realized.” Key Findings: Members of the public are extremely critical of CEOs who engage in questionable behavior. The public believes a violation of trust between a company and its customers is the most egregious ethical violation a CEO can make. Boards of directors are stricter than the public in administering punishment. Americans are surprisingly critical of potentially immoral behavior. Male and female CEOs are held to similar standards overall; however, some differences in perception exist.
Copyright held by David F. Larcker, Nicholas E. Donatiello, and Brian Tayan. Further inquiries about reproduction and use should be directed to the Corporate Governance Research Initiative.
