"The (Mis) Behavior of Successful CEOs Leads to Their Departure," and answer the following questions:

Chief Executive Officers (CEOs) are responsible for the overall direction and performance of their organizations. Arguably, no one in a firm has a greater impact or accountability than its CEO and with very few exceptions, the road to CEO is a long one. A career-long vetting process is intended to allow only the most talented managers to rise to the top. While it is expected that CEOs be skilled and knowledgeable business people, it is also important to recognize that they are human. CEOs are not immune from poor judgment or behavior. The following CEOs resigned their positions partly due to allegations of engaging in inappropriate relationships. It should be noted that internal company investigations did not find that any of these individuals had committed sexual harassment.

Harry Stonecipher

Following a successful 32-year track record in the aerospace industry, Harry Stonecipher’s career culminated when he was named CEO of The Boeing Company in 2003. Working for several different companies, Stonecipher began as a lab technician and eventually worked his way up the ranks to engineer, program manager, division manager, vice president, chief operating officer, president, and eventually CEO. Prior to joining Boeing and while president of Sundstrand (now Hamilton Sundstrand—a United Technologies Company) he is credited with repairing strained relationships with the United States Department of Defense, forming an excellent rapport with the company’s labor force, and establishing unprecedented levels of product reliability. In his brief three-year tenure as president of McDonnell Douglas, the company’s stock price increased almost 300 percent and he led the effort to merge with Boeing. After that merger Stonecipher became president and chief operating officer of Boeing, holding that position until 2001. In 2001, he was elected vice chairman and held this position until his retirement in 2002.

Upon Stonecipher’s retirement Phil Condit became CEO and the company was soon embroiled in numerous scandals, one of which resulted in the chief financial officer being sent to jail. Phil Condit was dismissed and Stonecipher, who was still on Boeing’s board of directors, returned as president and CEO in 2003. His task was to restore Boeing’s credibility. He introduced a new code of conduct that would apply to all of Boeing’s 150,000 employees. In short order, Stonecipher was successfully changing the image of the company and restoring trust in Boeing. Then the Board received an anonymous tip. In March of 2005, the Boeing board unanimously voted to remove Stonecipher on grounds that he had violated the Boeing code of conduct. The married Stonecipher was found to have had an extra marital affair with a female Boeing executive. The relationship was consensual; the executive did not work directly for Stonecipher and it was not considered “harassment.” He did not fight the dismissal. The board thought that Stonecipher’s actions showed poor judgment and would weaken his credibility as Boeing’s CEO. Stonecipher was given an attractive severance package and kept his nearly $700,000 a year pension.

Mark Hurd

In 2005, Mark Hurd was chairman and CEO of Hewlett-Packard (HP), the world’s largest computer company. He joined HP after a successful 22-year career with global technology company, NCR. Hurd took control of HP after allegations that during the previous CEO’s tenure, individuals at the company engaged in spying to discover who leaked information from a board meeting to a reporter. The scandal led to the resignation of HP’s chairwoman of the board, the general counsel, and two inside investigators. Hurd did much to distance the company from that scandal. He is said to have brought stability to HP and introduced a by-the-book approach to operations, uncompromising cost-cutting and an aggressive approach to acquisitions. In his five-year tenure Hurd is credited with increasing HP’s market capitalization by over $44 billion, to $108 billion, a 70 percent increase.

Although the company was financially successful, Hurd was forced to resign in 2010 due to allegations of sexual impropriety. An internal HP investigation found that there was no violation of their sexual harassment policy but the married Hurd had a “close personal relationship” with a female contractor. According to a New York Times investigation, Hurd was also “accused of trying to hide an inappropriate relationship with [the contractor] by altering his expense reports.” Even though Hurd offered to repay the misfiled expenses, the board insisted he resign. Hurd acknowledged his poor judgment when he stated: “There were instances in which I did not live up to the standards and principles of trust, respect, and integrity that I have espoused at HP and which have guided me throughout my career.” Hurd was given a $12.2 million severance and stock benefits in exchange for his agreement not to pursue legal action against the company. Oracle founder Larry Ellison compared Hurd’s dismissal to Apple’s misguided firing of Steven Jobs and hired Hurd as co-president.

Brian Dunn

By most accounts former Best Buy CEO Brian Dunn was a classic American success story. Dunn had started as a sales associate in 1985 and worked his way to the top of the company; becoming Best Buy’s CEO in 2009. To the surprise of many at Best Buy, Dunn unexpectedly resigned from the company in April 2012. While the reason for his departure was not initially shared, the married Dunn had been accused of having an inappropriate relationship with a 29-year-old female associate. An internal audit committee investigated the allegations and concluded that Dunn “violated company policy by engaging in an extremely close personal relationship with a female employee that negatively impacted the work environment.” While Dunn is alleged to have given the associate gifts, no misuse of company funds was found. As part of Dunn’s separation agreement, he was prohibited from working for a Best Buy competitor for at least three years and was given a $2.85 million severance payment, previously earned bonus of $1.14 million, and previously awarded stock grants, valued at $2.54 million.

What Happened?

Harry Stonecipher is quoted as saying, “Really smart people do dumb things sometimes.” The CEOs in this case were all highly successful managers at the pinnacle of their careers. They were aware of the ethical expectations of their boards, colleagues, employees, and other stakeholders, and in this age of information sharing should not have been surprised that their relationships came to light.

Employee misbehavior can occur at all levels of an organization and often the mere perception of misbehavior can have a chilling influence on one’s career and a negative impact on the public image of a company. This case demonstrates that managing employee misbehavior (and the perception of misbehavior) is an important and challenging goal for managers and leaders. It goes without saying that CEOs should set the tone for what constitutes acceptable behavior.

Question:

1. What forces were in play in the misbehavior of the three CEOs?

2. At what points does the Board of Directors have responsibility for interventions regarding the behavior of their CEO?