By John D. Stoll
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 23, 2018).
Brian Krzanich understood the public role chief executives play
in modern business.
In recent months Intel Corp.'s former CEO tweeted about ordering
a rainbow sprinkle doughnut in honor of gay-pride month.
He used Twitter to rally behind the Dreamers brought as
undocumented immigrants to the U.S. when they were children. In
December, Mr. Krzanich was on the cover of a Forbes issue ranking
the Top 100 corporate citizens, with the magazine saying "He's
#1."
Mr. Krzanich's resignation this week in the wake of a consensual
relationship with a co-worker surprised anyone who followed his
36-year career at the chip maker, but it's a familiar development
in an era when corporate chiefs operate under a microscope.
Mr. Krzanich hasn't been reachable for comment.
Management teams at public companies, long judged by boards on
profit growth and shareholder returns, should view the Krzanich
case as further evidence that the rule book governing the corner
office is changing.
Executives might call it the latest effect of #MeToo, or the
ubiquity of social media, or rising pressure on corporate
directors. What they can't do is plead ignorance.
"People need to understand what they signed up for," said
Charles Story, president of the ECS Group executive coaching firm
in Nashville. Mr. Story is a longtime board member at the
manufacturing company Briggs & Stratton Corp., and his firm has
advised a roster of companies that includes Microsoft Corp. and
Bank of America Corp.
"Everything you do, everything you say and everything you write
can and will be parsed and evaluated by everybody," he said. "CEOs
don't get to where they are without being competent, but I see too
many who have a lack of awareness."
If it feels like more CEOs are losing their jobs for
unacceptable behavior, it's because they are. A recent study
published by PwC found CEO dismissals for ethical lapses jumped 36%
between the five-year period ending in 2011 and the same span
ending in 2016. During that time, the typical tenure of company
chiefs also declined, according to research firm Equilar. One
reason for the trend, the firm noted, is the growing emphasis on
corporate transparency and increased scrutiny of executives.
Among the most potent examples of this was when video leaked of
Uber Technologies Inc. founder Travis Kalanick berating a driver
for his ride-hailing service. In the immediate aftermath of that
and other incidents, Mr. Kalanick said he was ashamed and needed
leadership help, but he eventually stepped away from the role of
chief executive.
Still, there are plenty of examples of CEOs, even in recent
years, who have been able to operate by their own set of standards,
with minimal consequences.
Consider Johnson Controls Inc.'s former chief, Alex Molinaroli.
The company in 2014 said the executive failed to comply with
company policy by not disclosing an extramarital affair with a
consultant whose company did work for Johnson Controls. The
executive committee slashed Mr. Molinaroli's bonus by $1 million,
but that was a drop in the bucket compared with the millions of
dollars he would make until his planned 2017 exit. (Mr. Molinari
told The Wall Street Journal at the time that he was "sorry
everybody went through it." A spokesman for the company said "we
consider the matter closed and have no further statements to
make.")
Or there is the case of Re/Max Holdings Inc.'s co-founder David
Liniger and the company's new chief executive, Adam Contos. In an
internal investigation concluded this year, both were found to have
violated company policy over a series of undisclosed gifts from Mr.
Liniger and his wife to Mr. Contos earlier this year, including a
$2.4 million loan, according to the company, which hasn't released
any statements from either man. It said Mr. Liniger was also found
to have violated policies related to workplace conduct. The realty
company, however, wouldn't disclose whether the two men faced
sanctions or disciplinary actions.
But increasingly, executives are facing very public consequences
for alleged misbehavior -- even in cases where the CEO in question
has long been seen as integral to the company's success.
For instance, WPP's longtime leader Martin Sorrell recently
stepped down amid a board probe into whether he used the
advertising and PR company's money to pay a prostitute. (Mr.
Sorrell has denied that he visited a prostitute and paid with
company money.) Steve Wynn left the helm of his namesake resorts
and casinos company in the wake of sexual misconduct
allegations.
Mr. Wynn said at the time of his resignation that he couldn't be
effective in an environment in which "a rush to judgment takes
precedence over everything else, including the facts." In a
response to Journal questions for a January article he declined to
address various such allegations but called the idea that he would
assault a woman "preposterous."
More recently, Guess Inc. co-founder Paul Marciano announced
that he would leave the company next year after an internal
investigation determined he exercised "poor judgment" in some
situations involving models and photographers. (Mr. Marciano has
not admitted wrongdoing and has denied claims by two women accusing
him of sexual misconduct.) John Lasseter, the co-founder of Pixar
and Walt Disney's animation head, recently said he was leaving the
company over "missteps" with employees.
Mr. Story, the consultant and Briggs & Stratton board
member, says mechanisms to hold the CEO accountable can help flag
problems early. For instance, there are hotlines at companies where
people can anonymously call and report ethics violations.
In many cases, the tools have been put in place by the very
managers they are intended to hold in check. "They realize the
margin of error has become infinitesimally small," says Mr.
Story.
Write to John D. Stoll at john.stoll@wsj.com
(END) Dow Jones Newswires
June 23, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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