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#MeToo Effect: Misconduct Now The Top Reason For CEO Departures

When credible allegations of sexual harassment or other misconduct are made against a top executive, companies need to take them seriously. If someone files a lawsuit, one thing the courts will consider is whether the company made a reasonable effort to investigate and correct the problem. If it did not, the company could be found liable and be forced to pay damages. It could also be a PR nightmare.

With the rise of the #MeToo movement, companies across America are taking that threat seriously. According to a new study from the consulting division of auditing giant PwC, even the reasons for CEO departures have shifted.

Since PwC's annual study of the world's 2,500 biggest public companies began 19 years ago, the top reason for CEO ousters has always been poor financial performance. In 2018, that changed for the first time. Last year, the most common reason (39%) CEOs left their companies was allegations of sexual misconduct or other challenges such as fraud, insider trading or bribery.

"Employees are starting to say, 'how can you enforce a policy on us without holding CEOs accountable?'" says a senior fellow at Harvard Business School who has been a CEO and served on corporate boards. "The CEO's behavior has to be beyond reproach. Boards are aware of this and are really feeling pressure around that now."

In the current climate, "there's a greater reputational hit of not acting than acting," he added.

The "first wave" of #MeToo-related ousters focused on corporate leaders who were reasonably well-known to the public. That included the head of Barnes & Noble, CBS chairman and CEO Les Moonves, the chief of the clothing company Lululemon and the head of Intel, among many others.

"A lot of bad actors are being cleared out of the reaches of corporate America," notes a University of Chicago professor who studies the ethics of leadership.

He suspects that there will be second and third waves. Lesser-known figures in less visible industries will be forced out if they are thought guilty of misconduct. Then, the pressure will make it down to small firms and even blue-collar workplaces.

"What we're beginning to see in this second and now third wave is corporate America taking responsibility for itself," he says. "There are clearly a lot of bad actors who are still hiding in the shadows that need to be swept out."

Is your organization feeling the pressure from #MeToo? If so, you do need to take steps to determine if any allegations are true -- and put measures in place to address any problems you uncover. If you need assistance investigating or addressing allegations of sexual harassment or other misconduct, contact your employment law attorney.

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