Companies affected by a scandal at the top of the corporate pyramid can’t undo the damage to its reputation simply by firing the offending CEO. A new analysis shows that it can take years to regain investors’ confidence, Jeff Green explains at Bloomberg:
The fallout from a lying, cheating, embezzling or offensive CEO can linger to soil the reputation of a company by an average of five years after an incident has passed, according to a Stanford University analysis, being released this week, that studied 38 examples of bosses behaving badly from 2000 to 2015. …
The offenses reviewed in the Stanford study, which included 13 examples of lying, eight sexual affairs and six incidences of questionable finances, resulted in an average of 258 news articles that spanned 4.9 years, the study found. Six of the CEOs expressed objectionable language or behavior, and five others aired controversial views in public.
Share prices declined an average of 3.1 percent as well, according to the study. The analysis noted that Hewlett Packard Co. stock dropped almost 9 percent in the three-day period following reports in 2010 that CEO Mark Hurd had a personal relationship with a female contractor.
This is an interesting perspective. In some of our previous work on employee engagement, we looked at the impact of scandals and found a strong initial dip of engagement as the scandal rages (12 percent on average) and then a relatively quick boost back to normal levels of engagement in about 21 months. So they do have a long tail, but employees seem to quit punishing the company for them a little faster than investors do, if the Stanford analysis is correct.