Dealing with misbehavior in the C-Suite, part 1

The link between corporate governance, enterprise risk management and ethical executive behavior

Julie Anne Preng, managing partner, Korn/Ferry International

We’ve all heard of Murphy’s Law: “Anything that can go wrong will go wrong.” While that might be a bit of an exaggeration, anyone at an executive level of a large company will acknowledge that, eventually, something major will go wrong. At the top levels, there are ways to manage these issues proactively, such as enterprise risk management (ERM) programs. But what is just as important is how companies choose to manage problems after they have occurred. 

I recently spoke with Julie Anne Preng, managing partner, Korn/Ferry International and speaker at the 2014 SuperConference in Chicago, Ill., about how companies deal with misdeeds in the C-Suite.

Preng cited the recent troubles that General Motors has endured as an example of how a company can poorly manage such problems. In GM’s case documents from the early 2000s revealed that the company knew about ignition switch problems, putting their management in some hot water. While it is unknown whether the C-Suite actually knew about the problem, e-mails unearthed indicate that there was information about the issue floating about at the time, indicating that, at some level, GM knew there was something amiss.

While Preng acknowledes that, in this case, the culpability of GM executives is unknown, she sees it as a hypothetical example of how a company could have information that would give them a dilemma. In her analysis, any sort of failure of leadership at the top could have been responsible for this. Failure by the higher-ups – be it the head of ops or manufacturing or even the GC or the CEO – to launch a broader-based inquiry would have been “a serious ethical breach of omission,” which cost lives and placed the company in a terrible position. After all, if you want to buy an American car, you’ll likely think twice about purchasing from GM.

Behavior like this marks a “severe failure to act in accordance with obligations as senior leaders of a company, an obligation to shareholders to launch a robust inquiry to find out what was going on, and it has tremendous economic fallout,” Preng explains. It’s a classic ethical dilemma – the crime of omission. She says that, at some point, leaders must fulfill their managerial obligations to shareholders and employees alike to take hold of a problem and deal with it instead of hoping it goes away. 

Though there is no way to know if the GM problem did come from problems up top, the fact remains that these types of problems do exist, and they can create serious issues.

In part 2 of this story, Preng reflects on the next steps, discussing what companies can do to prevent these situations from occurring and what they must do when something does go wrong. In the meantime, check out these other stories on ethics and compliance:

#litigationimpact: The digital frontier of litigation and the explosion of social media

10 crucial first steps for the chief compliance officer

Inside: Remember, your client is the corporation, not executives

Compliance programs require a team effort

Senior Editor

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Rich Steeves

Richard P. Steeves is Senior Editor of InsideCounsel magazine, where he covers the intellectual property and compliance beats. Rich earned a B.A. in English Literature...

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