Industryweek 10463 Environment

CEOs' Reputations Not Damaged by Environmental Lawsuits

March 2, 2016
Chief executives whose companies are embroiled in lawsuits over serious environmental or intellectual property (IP) issues either experience no reputational damage or, in some cases, find themselves better off.

In a study of almost 10,000 cases filed in the United States Federal Court over an eight-year period, researchers in Australia's University of Adelaide’s Business School investigated the flow-on effect for CEOs after their companies were sued for contractual, environmental and intellectual property lawsuits. The findings have been published in the Journal of Contemporary Accounting & Economics.

"The concept of reputational damage for CEOs following lawsuits is a fascinating one, and there's been a lot of previous work done on this in relation to securities fraud,” says Business School Lecturer Dr. Chelsea Liu, who conducted the work as part of her PhD studies at the University of Adelaide. “But until now, the reputational flow-on effects in relation to other types of lawsuits has largely remained unknown.”

Liu found that CEOs who leave their companies after contractual lawsuits often experience poorer re-employment prospects. So in a sense, there is a form of reputational damage or punishment that is reflected by the corporate labor market in these cases. However, Liu says she was surprised to find that CEOs whose companies were involved in IP lawsuits were rewarded with more invitations to join outside boardrooms.

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