Facing increased pressure from consumers, employees and regulators, corporate boards did something remarkable this past year: They dismissed more CEOs for ethical lapses than for financial performance or conflicts with directors.

This change, which occurred along with the rise of the "Me Too" movement, was detailed in the latest PwC CEO Success study. The findings show that boards are moving more aggressively to address unethical behavior; recent scandals make it clear that ethical lapses can lead to a nasty combination of internal cultural damage along with increased regulatory scrutiny and reputational and financial harm—especially if the behavior is ignored.

What's Driving These Changes

In addition to the "more aggressive intervention by regulatory and law enforcement authorities" as noted by PwC, we live in an era in which reputational damage can spread like wildfire. Social media and the 24/7 news cycle ensure that very little happens behind an opaque corporate curtain. When bad news reaches customers, investors, employees or even prospective employees—all of whom have increased expectations when it comes to social responsibility—the effect can be lost revenue, poor company performance and lost talent. Those factors are why forward-thinking organizations that recognize the value of strong cultures and are motivated to do the right thing are increasingly incorporating social responsibility into their organizational strategies.

It's also likely why, as reported by PwC, an increasing number of boards are adopting stances of zero tolerance toward executive misconduct.

The PwC study also found that at the world's 2,500 largest companies, turnover among CEOs was 17.5 percent in 2018. This was a record high, and three full percentage points above the rate in 2017. Both data points—and the PwC finding that CEOs are now expected to keep their job for five years, down from eight or more at the beginning of the century—are important context when you consider how ethical lapses have become a primary driver behind CEO dismissal.

Beyond CEO Direct Actions

Importantly, the ethical lapses as defined by PwC's study aren't limited to direct actions taken by CEOs. The study says that removals in that category stem from "a scandal or improper conduct by the CEO or other employees; examples include fraud, bribery, insider trading, environmental disasters, inflated resumes, and sexual indiscretions."

In other words, CEOs need not only be ethical themselves, they must stress ethical behavior across the organization. That begins by holding themselves and their leadership teams to the highest standards and never letting performance come before ethics, in part because such a mentality sets a tone at the top and can permeate through the rest of the organization.

Despite all of these trends, it is still relatively rare for a CEO to be dismissed due to ethical lapses. But the fact that it's becoming more common (while overall CEO turnover is trending upward) should be more reasons for executives to be on alert.

Executives should read the PwC report and contemplate the report's findings. Are they creating the right culture within their organization? Do they hold themselves, and their leadership teams, to the highest standards? And most importantly, do they fully grasp how even a small ethical misstep could result in significant damage to their organizations, their bottom lines—and indeed, their own jobs.

As President and CEO of NAVEX Global, Bob Conlin leads the executive team and serves as a member of the board of directors. He leverages more than 25 years of senior management experience in operations, sales, marketing, product management and business development to champion NAVEX Global's vision, strategy and execution.