Scarlet Letter: Are the CEOs and Directors of Failed Companies ‘Tainted’?

Abstract

There is a consistent pattern that emerges when a company suffers from a major governance failure: the stock price falls, the company faces lawsuits, and there is elevated turnover in both the executive suite and the boardroom. The impact on the careers of the former executives and directors of these companies is less clear. Recent experience suggests that many CEOs and directors of failed companies are able to retain outside directorships – and even obtain new ones – following their forced departures. 1. Should this be a concern for shareholders? 2. What is the standard by which the culpability of an executive or director should be measured? When are they too tainted by their experience to serve at other companies? 3. Is it plausible that officers and directors involved in an accounting or ethical problem can learn valuable lessons from the experience? Read the attached Closer Look and let us know what you think. Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.