Bad bosses are expensive

When a corporate leader is accused of misbehaving in his personal life, ranging from drunk driving to domestic disputes, their company’s market cap takes an average 110 million dollar hit, or 1.6 per cent loss of shareholder value, according to a new working paper from Mississippi State University, Drexel University and Northern Illinois University. The stakes are even higher when the CEO is the culprit: then shareholder value drops by 4.1 per cent. Researchers compared the performance of the accused executives’ firms to a general pool of 2,200 companies in the S&P 500.

The authors examined publicized instances of allegations of substance abuse, violence, dishonesty and amorous misadventure in executives’ personal lives, finding 219 such examples from 1978 to 2012. Nearly half of the instances were reports of sexual indiscretions, ranging from accusations of sexual harassment to an inappropriate relationship with a subordinate. Their behaviour may be expensive, but 65 per cent of executives with alleged indiscretions stay in their roles, even after repeat accusations, according to the researchers.

For full article go to:
The Wall Street Journal

Barbara Bierach