Canadian Manufacturing

Ethical lapses and scandal a bigger factor in CEO turnover, says PwC report

A study by financial services firm Price Waterhouse Cooper says the instances of North American CEOs being ousted due to questionable circumstances has more than doubled since 2011


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LONDON, U.K.—A new study on business leaders has found that CEOs in North America are increasingly being turfed for so-called “ethical lapses.”

Price Waterhouse Cooper’s consulting branch has released its annual “CEO Success study,” which says there has been an increase in CEOs in the U.S. and Canada leaving their position due to scandal or improper conduct.

The study, which looks at the world’s 2,500 largest companies, found that ethical lapses were responsible for 1.6 per cent of all CEO turnovers in the U.S. and Canada between 2007 and 2011, but that number shot up to 3.3 per cent between 2012 and 2016.

It found that despite the increase, companies in the U.S. and Canada still had the lowest rates of firing a boss for an ethical lapse.

Around the globe, the turnover rate for such offences went from 3.9 per cent between 2007 and 2011 to 5.3 per cent between 2012 and 2016.

An “ethical lapse” was defined as a scandal or improper conduct by the CEO or other employees, including fraud, bribery, insider trading, environmental disasters and sexual indiscretions.

Per-Ola Karlsson, with Price Waterhouse Cooper’s, said some potential reasons for the uptick include the increased use of email, text messaging and social media, the public’s declining trust in big corporate leaders, and governments implementing new zero-tolerance legislation and regulations.

Bigger companies are more likely to force out a CEO over an ethical lapse, the study said.

That may have a positive effect on public opinion over time, showing that bad behaviour is punished,said DeAnne Aguirre, a principal with Price Waterhouse Cooper U.S.

“In the meantime, CEOs need to lead by example on a personal and organizational level and strive to build and maintain a true culture of integrity,” Aguirre said.

The study also found that 12 women took the helm of major companies in 2016, representing 3.6 per cent of new CEOs. The study said businesses in the U.S. and Canada were most likely to hire a woman for the job.

The study also found that CEO turnover rates fell in every region except the U.S. and Canada.

It was not immediately clear how many Canadian companies were included in the study.


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