The lesson from Intel: Times are changing, even at the top
Greater transparency, increased scrutiny translate into higher turnover in executive suite
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 honour of gaypride month.
He used Twitter to rally behind the Dreamers brought as undocumented immigrants to the U.S. when they were children. In December, Krzanich was on the cover of a Forbes issue ranking the Top 100 corporate citizens, with the magazine saying “He’s No. 1.”
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. 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. 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 behaviour, it’s because they are. A recent study published by PwC found CEO dismissals for ethical lapses jumped 36 per cent 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 ridehailing service. In the immediate aftermath of that and other incidents, 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 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. (Molinaroli 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 Liniger and his wife to 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 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 misbehaviour — 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. (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.
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. cofounder 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. (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.
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 Story.
“CEOs don’t get to where they are without being competent, but I see too many who have a lack of awareness.”
CHARLES STORY PRESIDENT OF THE ECS GROUP