Management professor Michael Nalick explored why personal misconduct often brings harsher penalties
This Halloween season, at least a few people will be dressed up as the scandalous CEO and chief people officer that were caught on the “kiss cam” at a Coldplay concert in July. The moment went viral, setting social media ablaze and landing the people and company involved in the tabloids.
But it’s just another story that showcases the ramifications of CEO personal misconduct—something Daniels College of Business faculty member Michael Nalick has been researching for years. Nalick, an assistant professor in the Department of Management, recently completed research that explored the different consequences that stem from CEO personal misconduct and financial misconduct.
Michael Nalick
Anecdotally, Nalick was seeing executives involved in personal misconduct cases removed from their positions at a much higher rate than those that committed financial errors. Former Astronomer CEO Andy Byron is just one example, as he resigned days after his big screen Coldplay appearance.
Nalick’s recently published research examined nearly 400 CEO scandals that involved either personal or financial misconduct. The research found that not all misconduct cases are treated equally, and personal misconduct is met with more swift and more harsh penalties than financial misconduct.
Nalick and his fellow researchers compared 59 CEO personal misconduct events to 324 financial misconduct events. They found CEO dismissal and replacement decisions were frequently shaped by the type of misconduct, with a company’s performance having some impact on next steps.
In most personal misconduct cases, the offender was fired. Often, they were swiftly removed from their post. And, in many cases, it marked the end of their career.
“The questions surrounding personal misconduct are pretty profound,” Nalick said. “Who knew? Is this a singular problem? Or is this a cultural problem at the company? And if you use bad judgment in one area, are you going to use bad judgment in other areas?”
This doesn’t always apply to financial misconduct events, as Nalick’s research found that roughly half of all CEOs implicated in financial scandals survive.
“CEO personal misconduct was the number one reason that CEOs got fired,” Nalick said, adding that he believes it has to do with the newsiness and salience of these events.
Nalick’s research has positioned him as an expert in this field. Companies regularly consult with him when they find themselves mired in controversy. His advice is to slow down, gather the facts and be transparent in your decision-making process.
“I wouldn’t jump to conclusions. And I think the best board actions and corporate governance are the ones that actually take their time to really understand what’s going on,” he said. “Usually, when you’re rash and making decisions, you’re making the wrong ones. So, you really have to have much more of a thoughtful process.”
The more companies take a beat and slow down, he said, the more likely they are to present a cohesive, thought-out plan to investors, the media and the public.
“They need to have their ducks lined up. It needs to at least appear like a cohesive plan that was thought out,” he said.
Nalick’s research also supports the ethics-based teachings that Daniels prioritizes. He says that the nature of these stories places an even higher priority on identifying both a competent and ethical leader.
“It’s become an exceptionally large and significant implication for companies that they need to be aware of, even before hiring the CEO,” he said of personal misconduct. “They really need to vet these CEOs to make sure that not just are they competent but moral.”
Nalick doesn’t anticipate instances of CEO misconduct slowing down anytime soon, which gives him plenty of future opportunities for research.