Should CEOs take one for the team when faced with corporate crisis? 

Tony Jaques, explores the question using the example of the British banking scandal involving Nigel Farage and Coutts Private Bank

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As British banking sinks into the quicksand of a new scandal, an important question has emerged for organisations everywhere: Should the CEO be sacrificed in the wake of a reputational crisis?

The drama began when political gadfly Nigel Farage – former head of the UK Independence Party – announced that his bank (later identified as Coutts Private Bank) planned to close his account. He asserted that it was because of his outspoken right-wing views.

In response, the BBC reported in July that he had been dropped, not because of his polarising politics, but because he had not maintained an adequate balance in the exclusive 330-year-old bank.

However, it wasn’t true. Farage then released a 40-page document he had obtained from the bank, which showed their risk committee concluded he was 'a disingenuous grifter' whose incendiary statements were inconsistent with the bank’s values. That there were 'significant reputational risks' in being associated with him.

In a bombshell move, Dame Alison Rose, CEO of NatWest, which owns Coutts, confessed she had leaked the false story to the BBC. NatWest Chairman, Howard Davies, initially said the Board stood behind their CEO. But within hours, Rose resigned after pressure from the British Government, which has been the bank’s largest shareholder since a taxpayer-funded £45 billion bailout in 2008.

Dame Alison admitted to a 'serious error of judgement' and apologised for the 'deeply inappropriate language' in the report on Farage. With the bank’s share value dropping by £840 million, Peter Flavel, CEO of Coutts, also fell on his sword the next day. The Australian-born banker accepted that he held 'ultimate responsibility' for the handling of the politician’s accounts.

British politicians lined up to say Rose had done the right thing to resign as boss of the state-backed bank, although Bill Winters, CEO of rival Standard Chartered Bank observed: "That’s a pretty heavy price to pay for what would appear to be an error of judgement."

However, his was a lonely voice. Prime Minister Rishi Sunak declared it: "Wasn’t right for people to be deprived of basic services like banking because of their views." He said it wasn’t about any one individual, but about values such as free speech, freedom from discrimination and privacy of financial information.

Yet, his role in the affair was pretty clear and reminiscent of former Australian Prime Minister Scott Morrison, whose intervention ensured the departure of Christine Holgate, CEO of state-owned Australia Post, over a management award controversy (she later received a one million dollar settlement).

Debanking of individuals and small businesses is nothing new, with 8,500 complaints to Britain’s Banking Ombudsman in the last five years (and the same issue causing controversy in Australia). Accordingly, Flavel’s resignation seems less clear-cut. Unlike his boss at NatWest, he had not personally transgressed, which reinforces the question whether the CEO should be sacrificed.

When individual responsibility is identified, the answer is fairly obvious, like the eight PwC Australia partners, including the CEO, recently sacked after a tax leak scandal.

So, what's the proper response to broader corporate failings? A report in Fortune earlier this year concluded: "Powerful executives are often fired after a scandal to please investors, and it can backfire." The new study into how the market responds to a company’s handling of misconduct found that consistency through a storm, rather than firing executives, was the key to reducing share price volatility, while mixed messages scared off investors.

Moreover, does sacking the CEO – or allowing them to resign with a handsome payout – deliver any meaningful result? While it might 'avoid distraction' – as companies under pressure love to say – does it lead to any real change in culture or reputation?

In the case of Coutts debanking Nigel Farage, Rupert Younger of Oxford University’s Said Business School, warned that organisations have to ensure their own risk committees don’t overreach and get involved in inappropriate areas. "It’s classic when you have a committee that decides it needs to become relevant and it starts to flex its muscles in ways it shouldn’t," he said. "In this case, they created a reputation crisis that didn’t exist in the first place."