{"id":269722,"date":"2020-09-24T03:43:33","date_gmt":"2020-09-24T07:43:33","guid":{"rendered":"https:\/\/canadianinquirer.net\/v1\/?p=269722"},"modified":"2020-09-24T03:48:58","modified_gmt":"2020-09-24T07:48:58","slug":"how-good-governance-can-stop-toxic-bro-behaviour-at-companies","status":"publish","type":"post","link":"https:\/\/canadianinquirer.net\/v1\/2020\/09\/24\/how-good-governance-can-stop-toxic-bro-behaviour-at-companies\/","title":{"rendered":"How good governance can stop toxic ‘bro behaviour’ at companies"},"content":{"rendered":"
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McDonald\u2019s had a policy forbidding managers from having \u201cintimate interactions\u201d with direct or indirect employees. Easterbrook readily admitted the relationship and cited his desire to adhere to the company\u2019s code of conduct as motivating his admission. (File Photo: Darshan Gajar\/Unsplash)<\/figcaption><\/figure>\n

In 2019, the board of directors of McDonald\u2019s Corp. took the unusual but bold and moral decision to dismiss its CEO Steve Easterbrook<\/a> after he revealed he\u2019d had a consensual relationship with a co-worker.<\/p>\n

McDonald\u2019s had a policy forbidding managers from having \u201cintimate interactions\u201d with direct or indirect employees. Easterbrook readily admitted the relationship and cited his desire to adhere to the company\u2019s code of conduct as motivating his admission.<\/p>\n

In an email to all employees after the board announced his dismissal, he wrote<\/a>: \u201cThis was a mistake. Given the values of the company, I agree with the board that it is time for me to move on.\u201d<\/p>\n

The dismissal of a CEO is never something that boards take lightly, especially when it is sudden \u2014 and when the CEO is wildly successful.<\/p>\n

Under Easterbrook\u2019s leadership, McDonald\u2019s updated its menus and restaurants to reflect contemporary tastes, expanded delivery and mobile payments and otherwise evolved into a more modern organization. The market rewarded these efforts by doubling the share price during his tenure. Easterbrook was also rewarded with compensation in the tens of millions of dollars annually.<\/p>\n

Impacts shareholder wealth<\/h2>\n

Easterbrook\u2019s dismissal was seen by some as a triumph of morality and judgment \u2014 albeit at the expense of shareholder wealth. McDonald\u2019s shares went down by as much as three per cent<\/a> (US$4 billion value) shortly after the announcement.<\/p>\n

The board\u2019s dismissal without cause was deemed appropriate by media and investors under the circumstances and Easterbrook walked away with a severance package<\/a> worth about US$42 million.<\/p>\n

Fast forward to 2020. The board\u2019s ongoing investigation<\/a> has revealed, among other things, that Easterbrook sent explicit photos from his McDonald\u2019s email account, purportedly lied about other sexual relationships with co-workers and approved an extraordinary stock grant worth hundreds of thousands of dollars to one McDonald\u2019s employee \u201c\u2026 shortly after their first sexual encounter and within days of their second.\u201d<\/p>\n

As a result, the board belatedly filed a lawsuit against Easterbrook seeking to claw back the severance it had awarded eight months earlier, maintaining the CEO should have been dismissed for cause. Easterbrook responded in a court filing that the company and board already had all of this information \u2014 and had his entire email account and history stored on its company servers when it negotiated his severance package.<\/p>\n

\u2018Bro\u2019 behaviour is infectious<\/h2>\n

So, once again, toxic \u201cbro\u201d behaviour, as we have seen at Uber<\/a> and other organizations, infects an iconic organization, leaving the courts to decide.<\/p>\n

Certainly, Easterbrook is to blame for, by his own admission, breaking the company\u2019s code of conduct and, more importantly, the values it set for behaviour. However, the board shares responsibility for its singular failure to observe, recognize and act on what emerged as an ongoing, long-term, cultural and possibly legal fiasco.<\/p>\n

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\nRead more:
\nMcDonald’s upheaval is a stern reminder to CEOs about ethics<\/a>
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\n<\/em><\/p>\n

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In 2020, the business world is regrettably replete with examples of poor CEO behaviour, and the #MeToo movement is both widespread and widely known. So why do these situations persist? More to the point, why do boards seem to be constantly surprised by such egregious conduct?<\/p>\n

Corporate governance focuses a lot on \u201ctone at the top.\u201d Boards and directors are told and aware that they are under constant and unremitting scrutiny. Their acts \u2014 tacit and explicit \u2014 filter throughout their organizations, shareholders and stakeholders. They are the instigators, nurturers and custodians of one of an organization\u2019s most critical and enduring assets: its culture.<\/p>\n

So how can a board best ensure it discharges its responsibilities to corporate culture in an ethical, responsible and credible manner? How can boards best ensure, observe and embody the culture they desire for their organization?<\/p>\n

We suggest three key strategies:<\/p>\n

1. CEO selection<\/strong><\/p>\n

The board sets culture through its selection of the CEO. Boards are fascinating organisms inasmuch as they are a group that has only one employee \u2014 the CEO. Finding, recruiting, retaining and eventually replacing the organization\u2019s chief executive is the board\u2019s solemn function.<\/p>\n

The CEO defines and leads the organization\u2019s strategy. Through their behaviour and expressed beliefs, they come to define and perpetuate the organization\u2019s culture. As such, when considering the organization\u2019s succession plan, the board needs to be explicit about the values they\u2019re seeking in a CEO \u2014 and test for those values not only through interviews with candidates, but through interviews with people they have worked with, as well as with clients and suppliers.<\/p>\n

It also goes without saying that vetting includes a thorough background check. Past behaviour is one of the best predictors of future behaviour. If an aspiring CEO has inappropriate behaviour in their past, a thorough, confidential investigation before they are hired will likely reveal some of it.<\/p>\n

2. Compensation schemes<\/strong><\/p>\n

Once the CEO has been selected, the board negotiates a comprehensive compensation package. This package is based on a number of short, medium and long-term incentives and composed of both cash and shares or options.<\/p>\n

Compensation research<\/a> is clear in concluding that executives are remarkable in their ability to discern which behaviour is being compensated, and in turn, engaging in that very behaviour.<\/p>\n

In developing compensation schemes, boards should include behaviour targets (such as employee engagement and net promoter scores<\/a>) in addition to more traditional performance-based metrics. They may even include a morals clause.<\/p>\n

In evaluating the CEO\u2019s performance annually, the board should keep checking on the CEO\u2019s behaviour through both interviews and observation. The board should also anticipate and plan for involuntary dismissal of the CEO and include clawback mechanisms or even phased payouts in severance provisions.<\/p>\n

3. Get out of the boardroom<\/strong><\/p>\n

Many boards hold at least one meeting per year offsite. This has the effect of familiarizing directors with the organization\u2019s operations, as well as signalling to the organization\u2019s employees and other stakeholders the board\u2019s engagement with the entire organization, no matter where. Unfortunately, these off-site meetings are all too often highly scripted and co-ordinated affairs, more reminiscent of a theatre performance than a genuine pulse check.<\/p>\n

Directors, individually and collectively, must make it a priority to see the organization\u2019s operations from all perspectives. They should interact with employees, suppliers, customers and all stakeholders on a regular, unscripted and perhaps even unplanned basis. Only by doing so will they get a thorough idea of the company\u2019s culture.<\/p>\n

One highly successful director we know bases their decision to join a board partly by trying the organization\u2019s products or services as a customer and witnessing first-hand how frontline employees perform. Another CEO provides every director with an all-access security pass and keycard to all of the organization\u2019s workplaces, encouraging these directors to drop in unannounced to see operations firsthand.<\/p>\n

The situation at McDonald\u2019s did not arise spontaneously or suddenly. There are suggestions that it also extends beyond the CEO. Easterbrook\u2019s personality did not undergo a radical transformation when he became the CEO at McDonald\u2019s.<\/p>\n

There is an old adage that says \u201cthe fish rots from the head down.\u201d McDonald\u2019s board failed in its duty to create, nurture, monitor and sustain a positive, healthy organizational culture. Easterbrook\u2019s behaviour \u2014 and the ensuing impact on the entire company \u2014 was the result.\"The<\/p>\n

Michael Parent<\/a>, Professor of Management Information Systems \/ Fellow – David and Sharon Johnston Centre for Corporate Governance, Rotman School of Management, University of Toronto, Simon Fraser University<\/a><\/em> and Richard Powers<\/a>, Associate Professor, Rotman School of Management, University of Toronto<\/a><\/em><\/p>\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

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