It’s well known that trust has suffered across society in recent years, but few groups have seen a more precipitous decline than the CEO of large companies. The latest Gallup survey found that just 23% of respondents felt that CEOs could be trusted. That in itself is bad enough, but what can companies do to rebuild trust once it’s been lost?
That was the question posed by a recent study published in the Journal of Trust Research. The paper examines how members of the public react to various corporate responses to a CEO transgression, including sacking them and issuing an apology but keeping them in post.
The best strategy
Interestingly, most of the strategies helped to an extent, but they did so in very different ways. For instance, when the CEO was fired, it helped to differentiate the company from the individual transgressor, which largely left the reputation of the company intact. When the CEO was retained however, an apology from the boss along with an acknowledgement of wrongdoing helped people view that person as a ‘reformed sinner’.
The authors believe that both actions are important as they signal either that the CEO is distinct from the rest of the company, or that the CEO has learned their lesson from the event and is thus reformed.
“CEO transgressions, such as insider trading, siphoning of corporate funds for personal use, or inappropriate personal behavior, are an unfortunately common storyline in today’s business press. We find that actions taken by the board of directors are instrumental when addressing CEO misconduct,” they explain. “The board can send different signals via tactics such as firing the errant CEO or forcing him/her to apologize and pay a personal cost. These types of actions are key to repairing trust in the CEO’s associated organization, and even the CEO him/herself in cases where the CEO must stay.”
These were the most effective strategies discovered during the study, and attempts to retain the CEO whilst not admitting to wrong doing did tremendous damage to the reputation of the firm.
