Why Do Boards Keep Giving Misbehaving CEOs Second Chances?

Dow Jones
08/18

L3Harris Technologies' chief executive is out because of misconduct allegations, and it isn't the first time: More than a decade ago, Christopher Kubasik resigned from Lockheed Martin because he was accused of having a relationship with a subordinate.

His trajectory highlights a familiar pattern: Far from experiencing a career-ender, executives accused of code-of-conduct violations sometimes go on to land new leadership positions at different companies. Witness the two CEO roles Brian Krzanich has had at smaller companies since resigning as Intel CEO in 2018 after the company said he'd had a previous relationship with a co-worker. Or Mark Hurd's tenure at Oracle, after claims of misconduct while leading Hewlett-Packard.

As L3Harris is now encountering, looking past misconduct allegations at previous employers can backfire. The defense contractor's stock fell nearly 5% Monday on the news of the unceremonious exit, though the company didn't specify the reason and emphasized that it wasn't due to issues regarding the company's financial reporting or operational performance.

"If you're a board, and you're trying to make a decision, you will look past things," said Peter Crist, chairman of executive-recruitment firm Crist Kolder Associates. Yet even when corporate boards are tempted to draw a line between an executive's personal issues and their professional capabilities, "you can't divorce them," he added.

Neither L3Harris nor Kubasik responded to requests for comment. At the time of his Lockheed Martin departure, he expressed remorse for his actions: "I regret that my conduct in this matter did not meet the standards to which I have always held myself," he said in a 2012 statement.

Despite the greater accountability that boards have come to hold CEOs to over the years-especially with workplace relationships-those standards can be fuzzier for incoming CEO candidates. Some boards are willing to tolerate prior indiscretions, depending on the industry and specific circumstances, executive recruiters and corporate governance experts say.

Often boards will ignore past mistakes if they think the executive won't create messes on their own watch, said Janine Yancey, an employment lawyer and founder of HR compliance firm Emtrain. Their bigger worries are whether the executive has been involved in business malfeasance or behavior that harmed the company's financials or reputation.

"A relationship with a subordinate is so garden-variety, it's not going to influence that many board members other than for them to say, 'Let's give this person a warning,'" she said.

Boards "don't act based on behaviors. They act when those behaviors create enterprise risk for the business," she added.

Several executive recruiters said boards are more inclined to appoint a CEO with a less-than-pristine employment history when they believe there is a limited pool of candidates with the right experience.

In 2018, Krzanich resigned from Intel after the chip maker said an internal investigation found he had had "a past consensual relationship." That violated the company's nonfraternization policy, it said. Krzanich went on to become CEO of a smaller company, the technology provider CDK Global. In 2024, he was named CEO of the publicly traded AI company Cerence, where he remains today.

Cerence didn't comment or make Krzanich available for comment, and Krzanich didn't respond to a separate query.

Technology executive Mark Hurd left Hewlett-Packard in 2010 amid claims of misconduct involving a relationship with a female contractor. He soon re-emerged as an executive at database giant Oracle. Hurd had been tennis buddies with Oracle co-founder Larry Ellison, who publicly criticized HP's decision as "the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago."

Though the Hewlett-Packard board found Hurd didn't violate the company's policy regarding sexual harassment, it determined he had submitted inaccurate expense reports to conceal the relationship. A spokesman for Hurd, who would become Oracle's co-CEO, said later that there was nothing untoward or improper about Hurd's relationship. Hurd's 2019 death left Safra Catz as Oracle's sole CEO.

In the case of L3Harris's Kubasik, the longtime defense-industry executive and Lockheed CEO-elect resigned in 2012 for engaging in a "lengthy, close personal relationship" with a subordinate, according to the company. Lockheed Martin awarded him a $3.5 million separation payment.

When boards vet potential executives for a CEO job, some insist on calling an executive's former managers over decades to try to unearth any signs of misbehavior or problems that could emerge at the new company. Even then, though, some companies find past issues and still decide to appoint an executive to the top job, said Crist, the executive recruiter.

That can later blow up in boards' faces. "History has a way of repeating itself," he said.

 

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