Executive Misconduct and Employment Contracts

To twist a famous saying of F. Scott Fitzgerald, CEO’s who engage in wrongdoing are different from you and me – they have the protections of employment contracts. But that is beginning to change, due to the MeToo Movement.

In  Anticipating Harassment: MeToo and the Changing Norms of Executive Contracts     professors Rachel Arnow-Richman, James Hicks and Steven Davidoff Solomon state:

“A critical question post-MeToo is whether the power behind that social movement as translated into real change in organizational treatment of and tolerance for sex-based misconduct. This paper provides affirmative proof for this question. Our study of over 400 CEO contracts reveals that, post-MeToo, publicly traded companies are reserving greater discretion to terminate executives for sex-based misconduct in statistically significant numbers. By insisting on expanded contractual definitions of “cause” to terminate, these companies are signaling to CEOs that such behavior will not be tolerated, while ensuring that corporate boards are reducing the costs of penalizing wayward CEOs…. To be sure, CEO employment contracts—with their narrow and exclusive grounds for cause—remain highly favorable to CEOs, at least when compared to the rights of employees generally. However, the space to engage in sex-based (and potentially other forms of) misconduct that was previously afforded by these contracts is narrowing.”

While not a surprise, these findings are important – and should be shared with a company’s board of directors, senior leadership and compliance & ethics team.   Among other things, taking a strong position on CEO cause terminations should send a powerful message  to decision makers about the importance of C&E generally to an organization.

Leave a comment
*
**

*



* Required , ** will not be published.

*
= 4 + 6