Do Social Movements Spur Corporate Change? The Rise of “MeToo Termination Rights” in CEO Contracts

Do social movements spur corporate change? This Article sheds new empirical and theoretical light on the issue through an original study of executive contracts before and after MeToo. The MeToo movement, beginning in early 2018, exposed a workplace culture seemingly permissive of high-level, sex-based misconduct. Companies typically responded slowly and imposed few consequences on perpetrators, often allowing them to depart with lucrative exit packages. Why did companies reward rather than penalize bad actors, and has the movement disrupted this culture of complicity? This Article tackles these questions through the lens of executive contracting. Economic theory posits that CEO employment agreements are not negotiated at arms’ length and contain terms that strongly favor the executive. We hypothesize that these dynamics—typically associated with outsized compensation packages—resulted in pro-executive termination provisions that left room for executives to engage in sex-based misconduct without fear of reprisal. We argue that the MeToo movement represented a major shock to these bargaining dynamics and predict that, in the face of new reputational and liability risks, corporate boards will seek to reserve greater power to terminate CEOs for sex-based misconduct in post-MeToo agreements. We test—and substantiate—our hypotheses using a novel dataset of CEO employment agreements, focusing on changes to the contractual definition of a “for-cause” termination. In the wake of MeToo, we find a significant and growing rise in the prevalence of what we call “MeToo termination rights”—definitions of cause that permit companies to terminate CEOs without severance pay in cases of harassment, discrimination, and violations of company policy. Such grounds for cause broadly capture most forms of sex-based misconduct. This documented rise in MeToo termination rights holds important lessons for corporate governance, executive contracting, and gender equity. First, our results show that external shocks can disrupt traditional corporate bargaining dynamics, bringing contract terms more in line with changing expectations. Second, our results provide insight into contract design, suggesting possible tradeoffs that companies make in structuring these novel termination rights. Finally, our results can be understood as reflecting a realignment of the treatment of top-level executives with the treatment of ordinary workers who have long been subject to capacious sexual harassment policies. We conclude that the rise in MeToo termination rights offers promising evidence of increased corporate control of CEO behavior and greater institutional accountability for sex-based misconduct. We are therefore cautiously optimistic about the long-term effects of the MeToo movement and the ability of powerful social movements to inspire change within private institutions.