Jerry Falwell and CEO Oversight

The Lord works in mysterious ways, and compliance professionals witnessed that again this week. The Supreme Being sent us a flock of governance lessons to consider from the downfall of Jerry Falwell Jr., who just resigned as president of Liberty University amid a sex scandal.

Falwell had been leader of the evangelical college since 2007. He had already been on administrative leave since early August after photos circulated online of him with his arm around a woman not his wife, both of them with their pants unzipped. 



Then came allegations that Falwell’s wife, Becki, had been having an affair with a 20-something poolboy for years. Those statements came directly from the poolboy in question, Giancarlo Granda, who told Reuters that Falwell not only knew about his wife’s affair — he encouraged their assignations, “and Jerry enjoyed watching from the corner of the room.” 

Umm, well. That’s certainly one way to monitor your third parties. 

Granda was also a business partner of the Falwells. The couple met him in Miami in 2012, when he was 20 years old and tending to the pool while they were vacationing at the Fontainebleau Miami Beach Hotel. The affair apparently began that month, with or without Falwell’s observations. In 2013 the Falwells and Granda bought a Miami youth hostel together and made Granda the manager. He is still listed as a part owner of the hostel to this day.

We also have many other controversies surrounding Falwell’s leadership, from complaints of retaliation to questionable use of student tuition funding real estate deals.

Of course, none of this conduct is becoming for a supposed leader of the evangelical movement, who was also the first evangelical to endorse President Trump during the 2016 elections. Falwell had been living the high life politically, striding across Fox News and Republican politics from his base at Liberty University, warning everyone of the godless Democrats and praising Trump as the anointed savior of the country.

Then came the downfall. 

Colossal Obstacles to Governance

What intrigues me about Falwell isn’t his specific misconduct, but rather what he represents as a corporate governance failure. He is yet another larger-than-life CEO who ends up trampling over his organization’s business objectives, corporate culture, and reputation. 

How does a corporation defend against a threat like that? 

After all, Falwell is only the latest example in a long line of CEOs gone wild. I put him in the same category as Steve Wynn, namesake founder and CEO of Wynn Resorts; the late Albert “Chainsaw Al” Dunlap, supposed turnaround CEO in the 1990s whose career eventually ended in accounting fraud; or even Elon Musk, founder and CEO of Tesla, who persists in ignoring SEC settlement orders forbidding him from publishing irresponsible, market-moving outbursts on Twitter. The biggest example is President Trump and his disfigurement of the Republican Party.

All of these men are incorrigible governance threats to their respective organizations. Even when they performed well operationally — and to be fair, Falwell did turn around Liberty’s weak financial picture; Musk has stubbornly built Tesla into an important automaker — their personal behavior eclipsed everything else about the organization. 

And those are only the ones we know about, because they and their misconduct are famous. Countless other organizations have faced the same threat: overweening executives (usually men, but not always) who come to view the business as their own personal asset, rather than appreciating their role as a steward of that asset for the benefit of the business’s many stakeholders

Such leaders warp corporate culture the same way black holes warp the fabric of nearby space. Sometimes that distortion leads to spectacular disaster, as we’ve seen at Wynn Resorts and Liberty University; other times the distortion just prevents a business from living up to its full potential. (Lookin’ at you, Tesla.)  

Whenever the CEO starts to resemble a colossus within the organization, that’s a governance threat. 

Keeping Colossus Constrained

Clearly the vehicle to constrain a larger-than-life CEO is the board. So what does that mean in practice? 

First, build a board with a diversity of perspective: more women, more minorities, more varied career experience. Directors should be accomplished professionals who won’t be cowed by a CEO, rather than cronies looking for an annuity in the form of director fees. 

Put simply, they should be people not impressed by a CEO’s ego or bulls—t. Which means they should have life and career experience that has exposed them to a lot of corporate ego or bulls—t, so they know it when they see it.   

Second, that board should act as a counterweight to the CEO. It should be the one exerting oversight over him, not vice-versa. So consider structures such as an independent board chair, or by-laws that say board members lose their independence after serving a certain period (10 years, for example). The crucial point is that the board must have no qualms about telling an egotistical CEO that he needs to reconsider his place in the organization. 

Third, this means more responsibility for the nominating and governance committee. In the same way that the audit committee bears ultimate responsibility for financial reporting and risk management, the nominating committee should bear ultimate responsibility for CEOs who believe in their own infallibility. 

Remember, this committee is supposed to recommend other board members. It should be the committee that also pays attention to CEO success, including compensation, CEO succession, and leadership development for the C-suite generally. I know, I know — that may require an expansion of the nominating and governance committee’s duties. Well, if that’s what needs to happen for strong oversight, so be it.

Ultimately, successful organizations need board directors with a strong sense of the company’s mission, and a determination to foster management teams who prize those same goals. Because once the CEO starts to conflate “my success” with “the company’s success,” you’re sunk. Strong governance never allows that infection to take root in the first place. 

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