Corporate directors should now be on notice: bad behavior isn’t so easily swept under the rug.
As a parade of executives has been outed as sexist, racist or both, boards have been called on to set — and enforce — standards of decent behavior.
On Tuesday, veteran investor and ubiquitous pundit Marc Faber agreed to leave the boards of three companies after he published racist commentary in his subscription newsletter. The week before, five Weinstein Co. directors quit in the wake of revelations about Harvey Weinstein and his history of alleged sexual assault and harassment made public by the New York Times and the New Yorker. Earlier this fall, the directors of KB Home cut Chief Executive Officer Jeffrey Mezger’s bonus by 25 percent after he was recorded cursing and swearing at his neighbor, the comedian Kathy Griffin. Mezger apologized for the incident.
At this point, “CEOs and boards have to be the adults in the room,” said Davia Temin, head of the New York-based crisis-management firm Temin & Co. “Boards’ voices are getting strengthened, to some degree, because of the need of a counterpoint.”
The prevalence of social media puts pressure on boards to act more quickly and makes it more likely the public will learn about misconduct. Multiple women have come forward to say Weinstein’s pattern of behavior was well-known for years in Hollywood. Similarly, there were many signs of trouble in the Uber Technologies Inc. corporate culture prior to the decision to oust founder Travis Kalanick.
In both cases, the boards acted after public outcry. The New York Times exposed Weinstein’s history of sexual assault and harassment and, in Uber’s case, a detailed Twitter post described a sexist culture, and a videotaped rant showed him screaming at an Uber driver. Weinstein has denied any allegations of wrongdoing. Kalanick apologized and said he needed “leadership help.”
“Previously, they might have been able to excuse, ignore it, or they might not have known about it,” Temin said. “Today, everybody is living in an echo chamber. Social media has created reverberations of quotes that might have otherwise been buried.”
Similarly, Faber’s newsletter was published two weeks ago. He wrote that he was opposed to the removal of Civil War memorials to Confederacy leaders, saying their “only crime” was defending slavery. He also said the country benefited economically from 200 years of white rule. When his writings were made public, the Sprott Inc. board and management quickly asked him to resign his directorship.
“We take pride in the fact that we are a global organization with a racially inclusive employee, client and investment base,” said Sprott CEO Peter Grosskopf, who stepped out of a conference to rally the board of the money manager to act. “Our policies in that regard are crystal clear and well-known.”
Faber also left the boards of mining companies Novagold Resources Inc. and Ivanhoe Mines Ltd. A managing director at Drexel Burnham Lambert until 1990, his primary business these days is his director positions and his investor newsletter, which he promotes with regular appearances in financial media.
TV networks, too, this week tried to create distance from Faber. CNBC said it no longer would have him on. Neither will Bloomberg TV.
“If stating some historical facts makes me a racist, then I suppose that I am a racist,” Faber wrote in an email to Bloomberg. “For years, Japanese were condemned because they denied the Nanking massacre.”
It’s unclear what Faber was suggesting. The Imperial Japanese army is estimated to have killed hundreds of thousands of people in the Chinese city during the Sino-Japanese War in the late 1930s, according to Encyclopedia Britannica.
Grosskopf said if there had been “any hint” of Faber’s opinions on race, Sprott would not have had him on the board in the first place.
“Maybe he was on an acid trip or something of the sort. I’m not kidding,” Grosskopf said. “This is just shocking, and he has never, ever said anything like this in the past, even though he’s a controversial guy.”
It’s not just board members who are being held accountable. Roy Price, the head of Amazon.com Inc.’s movie and TV studio, resigned Tuesday amid allegations of sexual harassment. He didn’t respond to a request for comment.
Earlier this year, Alphabet Inc.’s Google fired an engineer, James Damore, after his internal memo questioning whether women had the temperament to work in tech jobs became public.
Overall, the number of CEOs who have been fired in the U.S. and Canada for ethical lapses more than doubled during the past five years, according to a study by consulting firm PwC — a signal that either CEO behavior is getting worse or boards are getting less tolerant.
In either case, corporate directors should consider themselves on notice, said David Larcker, a professor at the Stanford Graduate School of Business who has researched the reputational risks at companies where executives misbehave.
The firing of a CEO for improper conduct hurts a company’s reputation for five years after the incident, according to a 2016 Stanford University analysis that studied 38 examples of bosses behaving badly from 2000 to 2015. A separate Stanford study found that more than half the general public supports the firing of misbehaving bosses.
“They need to be ready to react quickly and have a clear policy,” said Larcker, who was part of both studies. “Virtually across the board there is a desire for some sort of reprimand to ensure people know, ‘This is not what we’re about in our company and our culture.”’
— With assistance by Danielle Bochove, and Max Abelson