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Public relations firm WPP is in the news today because of a shareholder revolt over the resignation of former CEO Martin Sorrell:
“Almost a third of shareholders did not back the company’s pay and bonus scheme and almost 17% did not support the re-election of chairman Roberto Quarta.
“Shareholders have demanded more clarity over the departure of Sir Martin. He resigned in April amid allegations of misconduct.”
Sorrell is typical of a generation of corporate CEO superstars that include people like Bill Gates, Elon Musk, Jeff Bezos and Steve Jobs – men (they are almost all men) who supposedly built corporate empires single-handedly. And yet Sorrell is merely the latest in what is looking like the mass slaughter of corporate CEOs across the developed world. In an article for Entrepreneur last December, Nina Zipkin reported that:
“2017 saw a raft of chief executives leave their companies. While some exits were expected and came after years of service, others were more surprising, brought on after the discovery of wrongdoing.”
Zipkin provides a slideshow of corporate CEOs who had recently resigned, which includes such luminaries as:
- Travis Kalanick, Uber
- Richard Smith, Equifax
- Marissa Mayer, Yahoo
- Kwon Oh-hyun, Samsung Electronics
- Matt Salzberg, Blue Apron
- David Karp, Tumblr
- John Bryant, Kellogg’s
- Ken Chenault, American Express
- Howard Schultz, Starbucks
- John Schattner, Papa John’s
Corporate CEOs, it would seem, are “dropping like flies.” Nor is the explosion of resignations and firings limited to the western side of the Atlantic. In December last year, Eire’s RTE produced a list of high profile CEOs who had resigned from European-based corporations:
“Some of the biggest names in Irish business stepped down from their leadership duties this year, while there were also surprise resignations at some of the world’s biggest companies…”
While legacy media outlets have covered CEO resignations individually, none has connected the sheer volume of resignations in the last year; still less attempted an analysis of why they are happening. Inevitably, that vacuum has been filled by the social media conspiratorium, with allegations of the “New World Order” or “Satanic Child Abuse” type. And while these explanations themselves are wildly outlandish, the long list of corporate CEO resignations cannot be dismissed… something is happening in the boardrooms of the world’s biggest corporations and beyond.
A more obvious explanation can be found in the rumours surrounding Martin Sorrell, who allegedly used corporate funds to hire a prostitute; something that Sorrell himself denies. In the aftermath of the fall of US media mogul Harvey Weinstein, any hint of sexual impropriety involving the coercive use of power more or less guarantees a resignation. The hugely successful “Me Too” campaign, driven by high-profile women with knowledge and experience of the inner workings of mass media, more or less guarantees greater reputational and financial damage from protecting a CEO than is caused by forcing his departure.
This is a revolutionary change to the position of corporate CEOs that a decade ago were treated as the Masters of the Universe in the business and financial world. Anyone who studied management science (before it was usurped by the dumbed down business school movement) will have learned that corporate CEOs were the modern equivalent of nineteenth century iron masters and coal barons; because control of capital had become more important than ownership. In the 1970s and 80s, CEOs were thought to be immune from criticism. As a 2005 working paper by Ray Fisman, Rakesh Khurana and Matthew Rhodes-Kropf from Yale University explains:
“While the board ideally acts as desired by shareholders, board entrenchment may insulate a poorly performing manager from shareholders agitating for her removal. The conventional ‘costly firing’ model of managerial entrenchment views this protection from shareholders as purely negative. Yet recent anecdotal evidence on managerial turnover suggests an alternative view of entrenchment: If shareholders misattribute poor performance to the CEO rather than to circumstance, then insulating management from the whims of shareholders may lead to better firing decisions.”
Unlike we mere mortals, who mostly sign contracts of employment (if we sign them at all) with little idea of what they contain, corporate CEOs tend to have teams of lawyers negotiate contracts on their behalf. These inevitably include eye-watering severance fees that have to be paid if the contract is ended early. Thus, for example, Martin Sorrell is reported to have been given a £19m severance fee to be paid over the next five years.
Since corporate affairs have tended to be buried toward the back of newspapers and in very early morning radio and TV slots, coverage of the misdeeds or poor performance of CEOs has tended to be short-lived and not widely known. In the past, this meant that it was cheaper for a board of directors to ride out a media storm than to pay a CEO to leave. This situation began to change sometime around the turn of the century so that, in 2002, Chuck Lucier, Eric Spiegel, and Rob Schuyt from Strategy and Business could report on one of the few research studies of CEO resignations:
“Of the CEOs who departed in 1995, 72 percent either died in office or retired, with thanks from their boards, according to a public schedule. In 2001, only 47 percent of corporate chiefs achieved such regular transitions. The ‘new normal’ is an early departure for the CEO, either because of performance or because of a merger. Today’s CEOs are like professional athletes — young people with short, well-compensated careers that continue only as long as they perform at exceptional levels.”
In this sense, the massive volume of CEO resignations seen in the last year may not be out of the ordinary at all. Rather, they may be evidence of an accelerating trend that began two decades ago. Moreover, it is a trend that goes much deeper than the Me Too sexual misconduct allegations.
The change is in the way mass media operate. In the days when news came from a handful of TV channels, radio stations and newspapers, the public had little access to corporate news. Moreover, news editors and proprietors – who often moved in the same social circles as corporate CEOs – were reluctant to provide unfavourable coverage of corporations that they depended upon for advertising revenue. In this environment, corporate CEOs could rely on editors’ discretion to keep all but the most egregious scandals out of the news.
Gradually, the Internet changed all that. Even in the very early days, bulletin boards and forums provided an outlet for whistle-blowers to publicise concerns about practices within corporations. However, these pale into insignificance when compared to contemporary social media platforms like Facebook, Twitter and YouTube (no wonder so many powerful interests are trying to curtail them). Consider the rapidity with which allegations that Oxfam aid workers had routinely exploited local sex workers in Haiti went viral. In a piece for Management Today, Stephen Jones offers the traditional management approach:
“Imagine this. You are CEO of a multinational organisation. It is leaked internally to you that some of your employees have been found to have committed indecent, illegal acts that will directly affect the reputation of the entire organisation.
“With the weight of an already alarming crisis on your shoulders, is your first instinct to go straight to the media and thus broadcast the scandal to the world? I’m sure many would agree, probably not.”
Think of the impact on your staff, your donors and your beneficiaries:
“To reveal something that can cause such damage to a company’s reputation goes against every fibre of your business sense. After all, one of the core purposes is to make decisions that are in the best interests of the company.
“Ultimately, by going public and bearing all, you know there can be no positive outcome – the senior resignations, Charity Commission investigations, rejection by donors and the permanently damaged reputation suffered by Oxfam in the fallout from the sex scandal only act as further indication of the possible toll.”
That might have worked years ago; but as the Oxfam case demonstrated, by the time internal PR had worked out their news management strategy, the news they were seeking to manage had already been seen and shared by millions of social media users. There is simply nowhere for corporate CEOs to hide misbehavior any more.
Nor is this new culture of enforced transparency limited to corporate boardrooms. In the UK last year we witnessed the early departure of two of Theresa May’s key ministers – Michal Fallon and Damien Green – following allegations of sexual misconduct. This, however, pales into insignificance compared to the spate of recent resignations from the US Congress. As Nathaniel Rakich from Five Thirty Eight reports:
“Five of the first six members to resign this session did so to accept jobs in President Trump’s administration. That’s not unusual. It’s similar to the seven members who resigned in 2009 to join the Obama administration and the five members who left in 1993 to join Bill Clinton’s.
“But in addition, three of the four most recent members to resign from the 115th Congress did so because they were accused of unwanted sexual advances: John Conyers, Trent Franks and Al Franken. Ruben Kihuen, Blake Farenthold and Pat Meehan have announced they will not run for re-election for the same reason…
“The extraordinary string of sexual misconduct allegations over the past few months has led many people to conclude we are in the midst of an unprecedented cultural moment. In the political world, at least, the data bears that out.”
More evidence for this cultural shift can be found in the counterclaims that the Me Too movement is a kind of witch-hunt because it is digging up historical misconduct. That is, powerful men are being held to account for sexual misconduct that they had considered entirely normal and acceptable in the late twentieth century. Even the doyenne of the US Democratic Party is finally getting his come-uppance. As veteran journalist Margery Eagan at the Boston Globe puts it:
“Remember when he took the stage at the 2012 Democratic Convention as Barack Obama’s explainer in chief? The crowd roared and swooned as ‘The Big Dog’ out of Arkansas strode to the podium. He bit his lip. He felt our pain. With arched eyebrows and a hoarse whisper, he told us why we needed Obama better than Obama could ever tell us himself.
“Democrats fell in love again with the bad boy who made them feel so good. Pundits gushed.
“So did I, I regret to admit, since I knew all about the women who accused him of sexual misconduct — Monica Lewinsky, Kathleen Willey, Paula Jones, and Juanita Broaddrick, who’d credibly claimed that Bill Clinton violently raped her.
“On that convention night and so many others, lots of us — including leaders of organized feminism — dismissed and diminished Bill Clinton’s accusers. Here was this brilliant politician, perhaps the most talented in decades, a liberal, a genius, ‘a great man.’ And who were these women, really? They did not matter. And that’s pretty horrible…
“Bill Clinton, who’s made no amends for his multiple transgressions, has shown he understands none of this. He still strides to the stage like a great man, floating above the fray, concerned only with great issues, such as war and peace and hunger. On his book tour last week, he seemed insulted to be called to account for something, to him, as inconsequential as what he did to an intern right out of college all those years ago.”
When even one of the most popular US presidents in modern times can be called to account for improper and very likely criminal acts committed decades ago, we have to accept that the culture has changed forever. And that is a good thing.
Our modern elite is having its behaviour scrutinised like never before… and it is all too often found wanting. This is not simply about sexual misconduct; although that appears to have been widespread. It is about all forms of abuse of power, corruption and misbehaviour from tax evasion to people trafficking and drug running. Indeed, it even stretches down to the mundane performance reviews that we ordinary mortals have been subjected to for years – in the world that is emerging we expect those in positions of power to justify their salaries by delivering the goods… and woe betide them if they fail.
As you made it to the end…
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