Friday, May 25, 2012

CEOs Behaving Badly

There's been a run of silliness at the top of the management food chain recently and I thought that several of these cases deserve comment.

Yahoo's CEO was recently forced out after it was discovered that he had falsely claimed to have an accounting and computer science undergraduate degree, and he only had an accounting degree.  The genesis of the false degree claim is odd-the gentleman was also the CEO at eBay prior to taking the Yahoo position, and his official SEC filing resume showed the correct undergraduate degree. However, his bio listed on PayPal at the same time references the nonexistent comp sci degree.  As serious as the Yahoo resume fraud is-the misstatements appeared in a formal SEC filing, which the CEO had to swear under oath was correct-the real problem here is that Yahoo was not making enough money in the opinion of a group of renegade shareholders.  The CEO's departure also resulted in the departure of a number of board members and senior management officials, including the woman who chaired the search committee that failed to detect the resume embellishment.

That would be consistent with my experience in this area-while resume fraud for relatively low level job applicants is an instant killer, at the rarefied levels of management, especially where there has been a demonstrated level of performance over the years, padding the old bio is not viewed nearly so seriously when the company is making money.  It's not uncommon to see dollars trump personal integrity issues, especially when the board has personal attachments to the malfeasor.  But when things aren't going so well, look out.

Over at Best Buy, the story is a little more convoluted but with similar results.  This time the misconduct involved self-aggrandizement of a somewhat different type-the CEO got himself into an overly familiar relationship with a female subordinate.  Apparently there was nothing particularly romantic about the relationship, at least not yet, but the woman in question was amazingly indiscreet about the many favors that the CEO was showering on her in the form of tickets, travel, dinners, etc.

When one of the woman's coworkers wrote a personal letter to the chairman of the board expressing her concerns about favoritism resulting from the relationship, the chairman did a remarkable thing. No, I don't mean he acted to investigate the allegations and determine whether there was a threat to the company; he did a remarkably dumb thing-he showed the personal letter, which identified the reporting female coworker by name, to the CEO, and told the CEO to knock it off. He did not advise the rest of the board about the problem, and, when the CEO didn't take the hint, was effectively forced out as board chairman several months after the CEO was forced to resign.

In this day and age, anyone in senior management forging a close personal relationship with a business subordinate needs to be careful. Anyone in senior management forging a close personal relationship with an attractive business subordinate of the opposite gender needs to have his/her head examined.You don't require a PhD in organizational psychology to understand the effects of this kind of situation.  And for goodness sake, when you get a formal complaint about a relationship like this, don't sweep it under the rug, or think you can deal with it "personally".

Finally, a recent revelation concerning the Stryker Corporation demonstrates that even when you follow the rules, you may not be safe. Stryker's CEO was forced out of the job earlier this year, officially for "family reasons". Unfortunately, it wasn't the CEO's family that drove the force-out, it was the Stryker family, which has the most shares in the privately held company.

The CEO, who had been very successful for the company and its business management, became the subject of discussion after his wife filed for divorce, and the CEO went to the chairman of the board and the board's compliance officer and asked for permission to date a woman employed by the company as a flight attendant on the corporate jet. The board advised the CEO that the relationship would be permissible if the woman left the company, which she did. Months after this episode, the board launched an independent investigation of the relationship, based on an anonymous phone call to the company hotline that there was a double standard in place because of the woman's departure.

Apparently the now separated spouse of the CEO had some friends, or at least one Stryker family friend, on the board. The end result-- the board separated the CEO, although it characterized the termination as "without cause." I would say so, given the fact that there was an explicit authorization of the relationship, and the independent investigation found no misconduct whatsoever by the CEO. So the message here is that running a business successfully, and making tons of money for your shareholders, and getting public approval for your relationships, and following the rules, isn't enough if you really irritate a powerful board member.

It's a little reminiscent of what I refer to as the Pirates of the Caribbean defense:  when convenient, the rules are more like guidelines.

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