Texas Instruments’ Swift Action Part Of Broader Crackdown On Misbehaving CEOs

Texas Instruments' Swift Action Part Of Broader Crackdown On Misbehaving CEOs

For deposed Texas Instruments CEO Brian Crutcher, the end came swiftly.

After a credible claim of an ethical breach made its way to the chipmaker’s board, within days Crutcher’s 22-year-rise to the top was over.

The semiconductor giant said Tuesday that Crutcher, 45, resigned due to “violations of the company’s code of conduct …related to personal behavior that is not consistent with our ethics and core values.”

The stunning pronouncement came just six weeks into Crutcher’s tenure as chief executive of Texas Instruments, making it the latest company rocked by executive misconduct.

Emboldened by the growing list of high-placed executives laid low, many by the #metoo movement, those who see something are increasingly opting to say something, at times leading to dramatic results.

And boards of directors, once derided as being mere appendages of the CEO, have stepped up their response to personal conduct violations and are showing even wunderkinds the door.

“Companies are under a different level of scrutiny and their boards are realizing that there are enormous costs to the companies that they are in charge of when a CEO participates in scandalous behavior,” said Andrew Challenger, vice president of the outplacement consulting and coaching firm Challenger Gray & Christmas.

“And so they are being quick to pull the trigger on letting CEOs go when there’s a whiff of impropriety in a way that they might not have been in the past.”

He said the trend has accelerated since late last year when the #metoo movement put a spotlight on sexual harassment in the workplace. More women felt empowered to step forward as their stories were taken more seriously.

And more workers have come forward to report a range of misdeeds, beyond sexual impropriety, experts said.

Texas Instruments did not give any details on the nature of the claim involving Crutcher, who could not be reached for comment.

Long tenure

Crutcher spent nearly all his adult work life at TI, starting in 1996 taking positions early on in sales and methodically working his way up the corporate ladder. He was promoted to senior vice president in 2010 and executive vice president in 2014. When he was named chief operating officer in 2017, analysts dubbed him the heir apparent. He was elected to the board of directors last July. On June 1, he took over as CEO.

While industries from food service to healthcare have seen CEOs bow out under a haze of scandal, the tech industry has garnered some of the biggest headlines.

One of the most high-profile resignations was of Uber CEO Travis Kalanick, who was forced out last summer after helping found the ride-hailing company and turning it into a household name. He stepped down after a former Uber engineer detailed a toxic “bro” culture that she said fostered pervasive sexual harassment and discrimination.

Texas Instruments became the third semiconductor company in just the past two months to wave bye-bye to its CEO because of personal conduct issues. TI joined chipmaker Intel and Rambus, a company that licenses semiconductor technology, in announcing a sudden CEO departure.

Texas Instruments, which began as an oil and gas company called Geophysical Service in 1930, seems an odd player on the scandal stage. The 88-year-old company develops and manufactures analog chips and embedded processors that help power a wide range of electronic devices, including equipment used in factories, camera and sensor systems in cars, and personal electronics like tablets and wearables.

A buttoned-down company that’s been reluctant to be in the media spotlight, TI has quietly grown to be a global leader in the semiconductor industry with more than 30,000 employees.

Hans Mosesmann, an analyst at Rosenblatt Securities, saw Crutcher’s resignation as surprising because until now Texas Instruments has been seen as a company whose “corporate culture is beyond reproach.”

Likewise, Crutcher, whose long tenure at the company made him a known quantity, seemed an unlikely candidate for such a fall from grace.

Crutcher earned a bachelor of science degree in electrical engineering from the University of Central Florida, where he was a defensive back for the UCF Knights football team. He also holds an MBA from the University of California, Irvine, according to a bio that was on the company’s website.

He dedicated part of his time to “inspiring the next generation of engineers,” the company said, and he put in place the student-athletes program in the UCF College of Engineering and Computer Science to help athletes succeed in the classroom.

In March 2012, the school honored him with a Distinguished Alumni Award.

As CEO, Crutcher’s base salary was $1 million, according to U.S. Securities and Exchange Commission filings. Last year, when he was still chief operating officer, his salary of $875,000 plus a bonus, profit sharing and stock grants came to $10.9 million, a filing showed.

His ascension to the top — announced in January — was part of a “well-planned succession” after the retirement of CEO Rich Templeton, the company said. Templeton, who spent 14 years in the top job, was tapped by the company to return to the role indefinitely after Crutcher left.

Culture matters

The sudden stumble left many TI watchers scratching their heads.

In other cases, signs of trouble are more evident.

Frank Dobbin is a sociology professor at Harvard University who studies corporate governance. 
He sees the tech troubles as a byproduct of inadequate diversity.

Tech companies are notorious for having a predominantly white male workforce, reinforcing the kind of insular culture that can foster discrimination, bullying or sexual harassment.

“We know that leadership affects the culture a lot and so when you have equal numbers of women and men in management it just changes the way people behave,” Dobbin said. “It changes expectations for what happens in meetings. It changes what happens after work. It even changes where people go for a drink after work.”

At Texas Instruments, the vast majority of the workforce is male, according to one report.

Of its roughly 11,670 employees in the U.S., 23 percent are women, according to data provided to the National Association for Female Executives.

And the company has been recognized for its efforts to promote women to high-ranking positions. About half of the direct reports to the CEO are women, the association said.

Of the 12 members of its board of directors, four are women, including Janet Clark, the retired chief financial officer of Marathon Oil, and Jean Hobby, a retired partner with PricewaterhouseCoopers.

The company did not provide any demographic information on the staff.

Board on watch

Shifting social mores, changing definitions of what’s acceptable workplace behavior and a board-executive relationship that’s less chummy are compelling execs to walk a straighter line, according to David Larcker. He’s a senior faculty member at the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford.

“Boards are a lot better now than they were, say 30 years ago, in pressing a CEO,” Larcker said. “In the old days, they were golfing buddies. Boards have gotten more sophisticated, more activist. Boards have stepped up, and they’re saying, ‘We are not going to sweep this under the rug.’

“Thirty years ago who knows what was really going on…. Thirty years ago there may have been some kind of slap on the hand or something done but not termination.”

Davia Temin, a New York-based consultant who coaches corporations in “reputation saving,” sees boards today as keepers of a company’s reputational capital in a way they weren’t even in the recent past.

“Reputational risk has increasingly become a top line pre-occupation of boards,” said Temin, president and chief executive of Temin and Company.

“Historically you found that star players’ bad behavior would get ignored …. There are all kinds of permutations on how this was handled before. I think now, with greater scrutiny, [boards] are holding their companies to higher standards and they are being quicker to act than ever before.”

That’s in part, she said, because the internet, fueled by social media, can turn an indiscretion into viral bonfire in a heartbeat.

“The stakes have gotten that much higher,” she said. “Share price seems to be whipsawed much more by reputational issues.”

So far that has not been the case for Texas Instruments, which has lost about a dollar per share since Tuesday’s announcement but is still up more than 40 percent over the price last fall. The stock closed Friday at $115, up 41 cents.

“They built a company that can withstand these kinds of things quite easily,” said Mosesmann, the analyst. “That’s how powerful it is.”

It’s a different story at pizza maker Papa John’s, where the share price is off nearly a quarter since its founder and former CEO and pitchman John Schnatter complained about NFL protests over police brutality and later used a racial slur.

He stepped down as CEO in January.

“These are huge companies,” said Stanford’s Larcker of many of the scandal-tainted businesses. “If you look at the stock price drop we are talking about real money.”

Challenger said “there’s always been a PR cost” associated with scandal.

“It’s multiplied many times in this environment,” he said. “It makes huge headlines …today in a way that it might not have a couple of years ago. Companies might see a deterioration of their bottom line if there is any type of pushback from customers buying the products because of the leadership of the company being involved in scandal. And companies that don’t react quickly could face a much bigger pushback. Boards, I think, are incentivized in this environment to act with quick decisions.”

Experts expect boards to engage in more stringent vetting, but not cast themselves as private investigators.

“I don’t think we’re going to follow people around,” Larcker said. “People are adults. It’s not like the board is out there looking under every stone. They are not the nanny of these people.

“But [boards are] going to lay out the rules and be serious about it.”

The fallout

And where does that leave the CEO?

Most chief executives at major corporations have employment contracts that help sort out what happens when the CEO departs, said Dustin Paschal of the Dallas-based employment law firm Simon Paschal.

Texas Instruments’ top executives do not, according to a regulatory filing.

Even with a contract, CEOs can miss out on a hefty payday for violating the company’s code of conduct, he said.

He doesn’t expect a rash of lawsuits to come out of the departures, in part because of contract language and in part because lawsuits, and the details in them, become public record.

“Just as much as the CEO doesn’t want it out there [the company] doesn’t want it out there. It doesn’t make you look good,” he said.

CEOs, as a general rule, don’t sit in on employee training sessions designed to make clear what’s acceptable workplace behavior. And Paschal doesn’t expect to see dramatic changes there either.

“The CEO oftentimes believes he or she is above it,” Paschal said.

Still, he feels that for some, the string of high-profile failures will serve as a cautionary tale.

“There will be some CEOs that start minding their Ps and Qs because of this,” he said.

Said Stanford’s Larcker: “You could be a great CEO in a lot of dimensions but if you violate the ethics or code of conduct, you’re not going to survive.”

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