Accountability: When the CEO is a Houdini

Houdini2Houdini turned escaping into an art form. Even now, his name conjures up someone good at extracting themselves from impossible situations, and not necessarily from hanging upside down while chained and manacled. The latest company Houdinis are Credit Suisse’s CEO Brady Dougan and his chairman Urs Rohmer.  Their bank is shortly expected to admit to criminal charges and pay a £1.5bn ($2.4bn) fine, becoming the first bank in more than decade to admit to a crime in the US.  “Too big to jail” seems alive and well and still living Rohner and Dougan in the banking world.

“In my opinion the CEO as well as the chairman of the board must go in order to save the bank. It’s shameful how top management are shielding themselves instead of protecting the company from damages.” Billionaire industrialist Christopher Blocher [1] Blocher

Despite Mr Blocher’s views, under the financial settlement neither of the two leaders will be leaving the bank under a cloud.      “If ever there were ever an occasion for an honorable resignation at the top to atone for an institutional failure, this was it.”
J.Gapper, Credit Suisse must offer an honourable resignation, FT, May 22 2014 The escapology of the Credit Swiss execs contrasts with the actions of the CEO of the US retail chain Target. He has resigned after a privacy disaster over losing customer data. For once this is encouraging news.target Attempts to suggest the company has learned such a lot from the experience–see for example The Truth Hurts —have somewhat tarnished an otherwise commendable action of taking personal responsibility for disaster. In fact, the demise of Target’s CEO raises the bigger question of why his kind seldom falls on their sword or gets the boot. Staying in the top job has admittedly never been easy. In the 1990s CEO tenure averaged nine years and by 2009, it had dropped nearly in half. Since then, survival rates have climbed back up, but turnover remains high. As of October 2013, there were 5.3% more CEO departures than in the first ten months of 2012. [2] In so many ethically dubious situations, the bad news soon gets lost in “enquiries”, investigations, and, most important of all, hunting for a scapegoat lower down the hierarchy. GSK in ChinaTake GSK, currently mired in a battle over corruption in China. In December last year, GSK scrapped individual sales targets for commercial staff in China. Why? Because these were distorting people’s approach to selling. Instead, the new decision linked pay to improved patient care. Must have come as a real revelation to GSK’s lonely CEO that his incentives were doing more harm than good. A few months later the company fired “a very small number” of its 7000 staff in China for breaching expenses rules. Naturally, it would be a small number. It would hardly do to admit the expenses system was so rotten people could easily rip it off. Again nothing to do with the CEO of course–that’s for someone accountable lower down the hierarchy. If GSK’s little local difficulties in China were restricted to that country we might all breathe easier. But the US Department of Justice has prosecuted GSK, along with others in the industry for marketing and clinical trial activities world-wide. GSK has since paid over $41 billion—billion not million!–criminal penalty charges, related to its promotion of drugs beyond their authorised uses. You might perhaps wonder who signed that monster cheque–surely not CEO Andrew Witty? This signature almost certainly will come from his financial controller. Meanwhile, Mr Witty, in the best Houdini tradition, escapes to live another day. Accountability—what accountability? Corbat of CitiIs Mr Mike Corbat’s job on the line? He’s CEO of Citigroup which has just purged 11 staff in Mexico, including four managing directors, after a two month “internal” investigation. The Mexico subsidiary was apparently involved in a $400 million fraud that forced the bank to cut its 2013 earning. Mr Corbit has announced the Mexico staff were fired because their “actions or inactions failed to protect our company from this fraud.” What about his actions or inactions? Sadly what this CEO did not say was:

I failed to protect Citigroup from serious fraud and as I’m accountable I’m standing down.”

Why not? Because that’s not how it works with most high flying CEOs. Being accountable for stuff happening in the far reaches of their empire is usually claimed as unfair. Let the locals carry the can. But how much does Citi actually spend making sure its many thousand employees behave ethically. That is, how much investment does it make training staff in responsible business practices, gaining their wholehearted commitment to doing the right thing? Unless Citi is a real exception the average amount of training given per person per year is—wait for it—about three or four hours. That’s hours not days.

“Before our investigations conclude we expect that several other employees, both inside and outside of Mexico may receive forms of disciplinary action as well” Mr Corbat wrote to his staff recently.

But as to the man overseeing the Mexico operation? Well he had his pay tweaked earlier over something else bad, but the bank was now “closing this painful episode in our history.” You bet—close it fast. Otherwise stakeholders might get round to asking not only why the man on the spot will not be made accountable, but why the CEO is still in his job.

Why do CEO’s get fired?

Certainly not for heading up corrupt, ethically dubious enterprises that cause real damage to society and their local communities—see table. According to research by Leadership IQ[3]  the causes come down to boards losing confidence in the leader due to

  • MISMANAGING CHANGE 31%
  • IGNORING CUSTOMERS 28%
  • TOLERATING LOW PERFORMERS 27%
  • DENYING REALITY 23%
  • TOO MUCH TALK, NOT ENOUGH ACTION 22%

Hidden in these figures are the ones who allowed fraud, bribery and other malpractices to flourish. According to Reuters, around four in ten of the highest-paid CEOs in the United States over the past 20 years eventually ended up being fired, paying fraud-related fines or settlements, or accepting government bailout money.[4]

Making CEOs accountable

To make CEOs carry the can should be relatively easy. After all, the buck is supposed to stop at the top isn’t it? In practice there’s another reality

“You have to burn the building down or have major, major embezzlement,” Pearl Meyer, senior managing director, Steven Hall & Partners, New York pay consultancy.

It’s so hard to get rid of CEOs that most boards don’t even try, even when ethical problems arise. Some boards work out departures that allow them to leave with severance or other benefits intact. Carly Fiorina’s ineffectual tenure at the top of computer company Hewlett Packard ended with a $23 million “separation package”. As one commentator sneered at the time:

“If that’s accountability, I suspect lots of people would sign up in a heartbeat,”[5]

Accountability for all aspects of the business rests with the CEO” claimed Tom Albanese as chief executive officer of Rio Tinto (RIO) who stood down last year after the company’s miserable financial results. However, as he well knew, many CEOs escape being accountable, staying in their position too long and leading their companies into decline: Scott McNealy at Sun Microsystems, Michael Eisner at Walt Disney (DIS), Fred Goodwin at Royal Bank of Scotland (RBS). [6] Apart from raising uncomfortable questions about ethics and capitalism, what have the last 10 years of fraud, market manipulation, mis-selling, regulatory breaches, and many other corporate misdemeanours and sheer financial failures shown? The first is about governance. CEOs are accountable to their companies and not the other way around. The second is accountability starts with the CEO but does not remain there. Others too must be made properly accountable—this is part of the CEO remit. Thirdly, there must be better ways to help CEOs become accountable, when boards are often so reluctant to do the job.

peer accountabilityPeer Accountability

This promising approach is where CEOs meet with groups of 10 to 20 peers committed to growing and improving their businesses. The groups attend monthly meetings chaired by a former CEO and skilled facilitator.[7] They help each other address their key business challenges and hold one another accountable. The group will quickly sense when a CEO is avoiding issues or doesn’t recognize how he or she is contributing to a problem or lack of resolution on an issue. The dynamic peer group will:

  • Call out their peers and be very direct with them
  • Expect to hear about progress at future meetings
  • Not tolerate hearing about the same issue over and over again without asking the member why he or she has refused to take advice and address the issue

There aren’t many members who want to appear like they are incapable in front of their peers. Perhaps a future development would be making a CEO appointment conditional on them attending a regular peer accountability group. One suspects that the CEO of GSK for example would have a rough time in front of his peers over yet another corporate malpractice.  [1] D. Rushe, Credite Suisse set to admit tax crimes, Guardian 20th May 2014 2] D Hansen, Why Successful CEOs Get Fired, Forbes, 18/2013 [3] Why Do CEOs Get Fired? Global Business News [4] N. Damouni, Highest-paid U.S. CEOs are often fired or fine Reuters, Aug 28, 2013 [5] J. Merritt, Does the Buck Really Stop With the CEO?  Linkedin August 12 2013 [6] J. Birkenshaw, Making the CEO Accountable, Bloomberg Businessweek, January 18, 2013 [7] S.Colbert,Stephen Colver and CEO Accountability, in Vistage Chair, June 15, 2010   Why not subscribe to www.ethical-leadership.co.uk to be notified  of the latest postings–and it’s free! Click on the Subscribe button at the top of the right hand panel.

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