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The Daily

CEOs Behaving Badly Can Cost Company Millions

Chris Gaetano
Published Date:
Apr 15, 2015
liesViolence, substance abuse, dishonesty, and sexual misadventure are things that most people would agree are not what they want in a CEO. A new study has attempted to quantify just how much these behaviors cost the company when the chief does them, according to Fortune, and the answer is about $226 million over three days. The study looked at recent high-profile scandals involving prominent CEOs and the effects that they had on their company's stock value. This included former Best Buy CEO Brian Dunn, who was accused of having an affair with a 29 year-old leadership trainee in 2012; former US Airways CEO (and current CEO of American Airlines) Doug Parker, who was arrested in 2007 for driving under the influence, following two prior convictions; and, again from 2007, the former head of Time Warner’s HBO unit, Chris Albrecht, who was accused of assaulting his girlfriend outside an MGM casino after a boxing match, according to Fortune, as well as Yahoo CEO Scott Thompson, who in 2012 was found to have claimed an unearned computer science degree.

Reactions to events like this have led, on average, to the loss of about $226 million in shareholder value over three days in the short term. The study also, however, said there were significant long-term effects of CEOs acting in a manner unbecoming of their position: stock prices fell between 11 and 14 percent over the next 12 months, and had poorer operating performance, said Fortune. The study also said the companies become more likely to be sued by shareholders, as well as more likely to be subject to regulatory action. On the last point, it could be because the study also found that such CEOs are also more likely to manipulate finances.