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Friday, November 16, 2012

Strategic CSR - CEOs and ethics

Maybe someone can explain the story covered in the article in the url below to me in simple terms, because, on the face of it, it makes no sense:

Lockheed Martin Corp. ousted its incoming chief executive, Christopher Kubasik, for having a ‘close personal relationship’ with a subordinate at the defense contractor. The company said Mr. Kubasik was asked to resign Friday after an investigation determined the ‘improper conduct’ violated Lockheed Martin's code of ethics. He will receive a $3.5 million separation payment.

I understand that CEO tenure is decreasing and that, having worked their way to the top, CEOs need contractual safeguards in case they lose the position through some factor (more or less) beyond their control. But, how is it that when an individual breaks the firm’s ethics code through personal choice, conducting himself in a way that damages the firm’s reputation, and is forced to resign as a result (i.e., he is fired), he receives a payout of $3.5 million, even before he becomes CEO?

How is it that compensation committees on the Board are so weak and pathetic that they cannot just fire the person, without having to buy-off the threat of a lawsuit with $3.5 million, when they have every reason (and right) to fire the guy?

And we wonder why the Gallup Annual Honesty and Ethics poll, which rates “the honesty and ethics of workers in 21 different professions,” reveals that the public’s perception of business executives is not very high. From 1992 to 2010, the percentage of the U.S. public surveyed who rated business executives’ ethics as “high” or “very high” never rises above 25% and is trending downwards.

More importantly for Lockheed, I wonder what message its decision sends to employees about how seriously senior executives and directors take the firm’s ethics code.

Have a good weekend

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Lockheed Ousts New Chief
By Doug Cameron & Joann S. Lublin
November 10-11, 2012
The Wall Street Journal
Late Edition – Final