CEO scandals can hurt organizations' reputations for years

Scandals involving CEOs can impact the individual and a company or organization's image for years, according to a new study from Stanford University. 

That was certainly the case for Dennis C. Miller, the former CEO of Somerset Medical Center in New Jersey, who was the executive in charge when news broke in 2003 that one of the nurses at the hospital was arrested for murdering one patient and attempted to kill another by administering lethal combinations of drugs. The media attention was intense and as Miller told Fortune this week, he knew his professional career would not survive the tragedy as the nurse worked for years, unchecked, under his leadership.

"I took this personally. I'm hospital CEO," he told the publication. "People died here."

While the study didn't specifically focus on CEOs of healthcare organizations, its findings are relevant to hospital executives and boards. The research team analyzed media reports published between 2000 and 2015, and found close to 40 instances where a CEO's behavior generated more than 10 unique news references. Incidents included lying about personal issues like drunken driving charges or falsified credentials; romantic affairs within the company or with key consultants or contractors; questionable, but still legal, usage of corporate funds; and controversial public statements.

The examined scandals hurt company reputations for an average of nearly 5 years in the news, and caused an average decline of 3.1 percent in shares when the news first broke, according to the report.

Researchers also looked at the response to such incidents from a company's board of directors. The hospital board terminated Miller seven months after the news broke. And it's a common reaction. In 58 percent of the cases studied, the CEO was terminated and it took an average of 375 days for boards to do so. Other boards responded by launching an internal investigation, providing comment to the press through release or spokespeople and accepting the CEO's resignation from his or her role, according to the findings.

Why does this data matter? The team says the CEO's personal conduct is an important element of leading from the top down. Boards, they said, must find ways to detect misconduct first, instead of learning about it through media reports.

To learn more:
- read the study (.pdf)
- here's the Fortune piece

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