Why Scandals Hurt CEO Reputations More Than Fraud

The infamous viral video that featured Andy Byron, the then-CEO of the small New York-based data platform Astronomer, on the kiss cam at a Coldplay concert in a seemingly intimate embrace with his chief people officer, Kristin Cabot, went global earlier this year. Both parties were married to other people, so Byron quickly took the fall and resigned, with Cabot following shortly after.

Given the worldwide attention the clip gained, their resignations were all but inevitable. But new research suggests that a scandal of a personal nature like this is much more harmful to CEOs than you might think — no rock band kiss cam necessary. In fact, if a CEO is caught committing fraud, it’s far less harmful to their future than becoming embroiled in a more personal scandal.

The actual figure is surprising: CEOs are five times more likely to survive fraud-related scandals than they are if they get caught in inappropriate relationships, issues like drug or alcohol abuse, violence or inappropriate speech, Phys.org reports. The study leader, Aaron Hill, an associate professor from the University of Florida Warrington College of Business, told the news outlet that in an instance of financial fraud, a CEO “can easily say, ‘Hey, it wasn’t me,’” but for the other sorts of scandal, like “personal misconduct, there’s no excuse,” because it’s harder to evade accusations of direct involvement in the problem.

The researchers also found company boards act decisively when a leader’s personal scandals become known, but recent company performance has more of an impact on how they react to a leader’s involvement in a financial scandal. If the company is doing well, the CEO is more likely to be allowed to remain at their post, possibly because company directors may have “plausible deniability” about absolute blame, and little incentive to disrupt the company’s success.  

And when a leader does get fired when their personal misbehavior goes public, the researchers found boards are more likely to promote an insider into the role. it’s a “signalling move,” according to Hill, implying the company is fine, and the behavior of one bad apple has been addressed. “Stick with an insider after a personal scandal, and it says the organization itself is sound,” Hill said. He added that if it’s fraud, it’s better to reassure markets and clients by hiring an outsider. This is exactly what Astronomer did, in the wake of the Coldplay video scandal, by promoting Pete DeJoy, a co-founder, into an interim CEO position while looking for a replacement.

CEOs, of course, hold massive authority over their companies, and their public image may be tightly bound up with that of the firm itself. Recent data show exactly how influential CEOs have become, with the average leaders’ pay rising nearly 6 percent in 2024, so they now make 281 times the salary of the average worker, the Economic Policy Institute showed.

Acting swiftly to remove a scandal-tangled CEO thus makes economic sense as well as protecting the company from reputational harm. This is something Hill also highlighted, noting that firing a CEO after a scandal is nearly always motivated by finances. Meanwhile if a company leaves a CEO in post, it can simply send “the wrong message — to employees, to investors and to the public,” Hill noted.

What can you take away from this for your own company? 

You might think that in your smaller, more family-like atmosphere none of these issues are likely to raise their ugly heads. And hopefully you’re right. But remember that recent data show one in three U.S. workers has had a relationship with their manager, and 91 percent of the people surveyed said they’d used flirting or charm to boost their position with leadership.

The one lesson you can learn from this is that a scandal really can impact your company unless it’s handled right, and one of a personal nature (instead of, say, fraud) can be even more damaging for the executives involved.