Question

There have been several recent cases of a CEO or CFO resigning or being ousted for misrepresenting academic credentials. For instance, during February 2006, the CEO of RadioShack resigned by “mutual agreement” for inflating his educational background. During 2002, Veritas Software Corporation’s DFO resigned after claiming to have an MBA from Stanford University. On the other hand, Bausch & Lomb Inc.’s board refused the CEO’s offer to resign following a questionable claim to have an MBA.

Suppose you have been retained by the board of a company where the CEO has ‘overstated’ credentials. This company has a code of ethics and conduct which states that the employee should always do “the right thing.”

(a) What is the board of directors’ responsibility in such matters?

(b) What arguments would you make to ask the CEO to resign? What damage might be caused if the decision is made to retain the current CEO?

Answer 1

Ans-(a)

The Board should first investigate the matter.The investigation should be conducted taking help of independent and competent authority.Once the allegation is established with sound evidence.Before taking any action the Board should provide CEO an opportunity to present his argument.This is to ensure a fair and transparent process.

Board should also assess as to recovery of the extra ordinary emoluments / bonuses granted to CEO as a penalty.

Ans-(b)

The argument for asking CEO to resign will be that of violation of the basic code of ethic and also of false representation which in a way amounts to fraud.Fraud in misleading the Organization in his academia.By asking him to resign would save CEO of some credentials of not getting exposed in the Industry and would give him a second chance to correct himself in next assignment somewhere else , which from a humanatarian perspective fits in.

Retaining the CEO is not at all a good idea.CEO is the person responsible for running the operations entrusted by the Board who in turn are entrusted by the shareholders.The whole chain of trust collapses if the CEO has malafide intentions.By the given case it clearly gets established that the CEO has personal ambitions and is willing to take fraudulent routes for achieving the same.He may try to make personal fortune at the cost of the Organization.The starting was by making a false claim as to his education so as to have the CEO position.