Break In Case Of Scandal: It's best to think about succession planning before your CEO is removed from office.

Author:Andra, Jacob
 
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In 2017, Uber's Travis Kalanick resigned as CEO in part because of the mishandling of reports that Uber's workplace culture fostered sexual harassment and discrimination. Apparently, Mr. Kalanick wound up in hot water less over naughty actions of his own and more for his inaction with regard to the malfeasance of his subordinates. Mr. Kalanick's sudden resignation became a high-profile event, but it was only one of a steadily growing trend.

"Contrary to the typical view that corporations are solid, invincible organizations," says corporate attorney Joseph Rust of Salt Lake City-based Kesler & Rust, "they are quite fragile entities." Large, midsize, or small, "much of the success of the company can be traced back to one individual." The CEO--or top executive--exercises disproportionate influence over a company's fortunes, and the removal of said CEO can have catastrophic effects.

"Failure to plan creates the risk of chaos, confusion, [and] power struggles," says Mark Rinehart, a Bountiful-based corporate attorney. It can paralyze a company at precisely the moment when leadership is needed the most.

Uber's transition created a media frenzy, but it highlights a very real issue: transitions of power can wreak havoc on an organization ... or they can occur with relative ease. "Corporate succession," says Mr. Rust, is about planning ahead so that a company can "move forward smoothly, effectively, and possibly even more successfully."

When scandal strikes

According to a 2001 PxC study, "The new normal is an early departure for the CEO ... The premature departure of a CEO-a 'retirement' that, however described, is not voluntary, and that in years past befell only the unlucky or ineffective-is no longer an exceptional event, but the rule."

These "premature departures" usually--as in the Uber scenario--come in the form of an abrupt "resignation"-which is corporate-speak for "stepping down rather than being fired for doing something bad." Or, as in Mr. Kalanick's case, not doing something when others are engaging in bad behavior.

According to a PwC study of the world's 2500 largest companies, CEO resignations "soared to a record high of 17.5 percent in 2018--three percentage points higher than the 14.5 percent rate in 2017." 2018 represented the first time in PwC's history of conducting the study that ethical lapses brought more resignations than financial performance or board struggles.

Those ethical lapses can manifest as prevarication. Samsonite...

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