Thursday 12 September 2019 4:04 am

The problems caused by superstar CEOs

José Hernandez is the chief executive of Ortus Strategies and the author of Broken Business: Seven Steps to Reform Good Companies Gone Bad.
and Mark Laurie
Mark Laurie is a consulting director at Ortus Strategies.

Earlier this year, a new chapter unfurled in the sad saga of former automotive industry leader Carlos Ghosn, when Japanese prosecutors arrested the embattled former chairman of Nissan and Renault for the fourth time since November 2018. 

Ghosn has been under house arrest since April, awaiting trial. He faces charges that he understated his income and abused his position for personal enrichment, including the allegation that he committed a breach of trust by funneling $5m of Nissan funds into a dealership under his control. He denies all the charges.

But Ghosn’s dramatic downfall stands out among corporate scandals, as he had long been hailed as a visionary reformer who had overseen impressive transformations of the carmakers under his leadership.  

Although Ghosn’s case has attracted particular attention in the media, the unfortunate truth is that integrity failures on the part of chief executives and other senior corporate leaders are not as rare as they should be. 

In our work advising boards and chief executives on crisis response in the wake of major ethical scandals, we have seen numerous respected leaders forced to step down amid allegations of misconduct that occurred under their watch. They had executed faulty strategies, put weak oversight systems in place, and become blind to widespread misconduct within their organisations. In almost every instance, the resulting damage to their company’s reputation long outlives their tenures.  

We have also seen bad guys celebrated as good guys for far too long. That is, we have seen corporate “superstar” leaders – including chief executives – feted and rewarded, even as their behind-the-scenes conduct slowly rotted away the culture of integrity that the firm was trying to maintain. 

This is not really surprising; unethical superstars are a natural byproduct of a ruthlessly competitive global marketplace with its unceasing demands for growth. Such leaders are highly intelligent, creative, and driven – which makes them both effective and dangerous. 

They are afforded a great deal of latitude in which to operate. They also tend to be very charismatic to the people they need to charm, and monstrous to those they want to control. 

Individuals with this much power frequently end up being the focal point of corruption in their companies. They are, by nature, the people most likely to believe that the rules do not apply to them, and they have a way of infecting the company culture through their outward persona and influence. 

So, how can businesses keep these individuals in check? The important work of reining in these superstars begins with the board of directors. 

Boards cannot allow themselves to be dazzled by strong profits at the potential expense of the company’s reputation and ethical compass. They must not take the credentials or financial target-based performance of entrepreneurial executives at face value, but should instead focus on their working methods. They must also pay close attention to deviations from corporate culture, established strategy, and policies and procedures. 

Some superstars maintain and expand their power by carving out fiefdoms within the company, and then promoting fear and silence within their mini-empires. In response to this, board-members need to open their eyes and ears: listen to the messages sent by whistle-blowers, representatives of gatekeeping functions, internal audits, and investigations. 

Misconduct may be inevitable, but scandal is not. By heeding the early warning signs and having the courage to hold leaders accountable, directors can play a critical role in protecting their companies from those – like Ghosn – who can do them so much damage. 

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.