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Why someone like the KB Home CEO could keep his job after a profane outburst

Erin Fuchs
Deputy Managing Editor

The CEO of major US homebuilder KB Home (KBH), Jeffrey Mezger, whipped up a mountain of negative press this week after he was caught on tape using homophobic and sexist slurs.

That tape probably garnered even more headlines than it usually would because Mezger was railing against his neighbor, and apparent nemesis, the comedian Kathy Griffin. In light of all of this negative press, one might assume that Mezger’s offensive rant jeopardized his job.

However, it’s not entirely clear that Mezger’s outburst was a career-ender. To be sure, Mezger didn’t simply lose his temper. He called Griffin a “bald d-ke” and a “c-nt” after she and her boyfriend called the police to report a noise disturbance coming from his Bel Air home. Griffin had reportedly shaved her head out of solidarity with her sister who died of cancer last week, making Mezger’s comments seem even more callous.

In this Oct. 29, 2007 photo, KB Home CEO Jeffrey Mezger speaks during a panel discussion on the subprime market fallout in Beverly Hills, Calif. (AP Photo/Ric Francis)

Still, as ugly as the Griffin dispute was, it may not end up hurting the company, and that’s the main question that will concern the board.

‘Does a controversy involving him affect the company itself?’

“The question is, does a controversy involving him affect the company itself?” said Charles Elson, the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “They’ll look at, ‘Has the market reacted negatively to it? … It may not impact it at all.”

KB Home may be particularly suited to weather a public-relations storm like this one, as it’s not a very well-known consumer-facing brand and hasn’t been embroiled in other high-profile controversies. In the day after the Kathy Griffin story broke, the stock fell by a modest 2%.

It’s unlikely the board would fire Mezger over this, according to Bruce Kogut, director of the Sanford C. Bernstein & Co. Center for Leadership and Ethics at Columbia University’s Business School.

“I doubt if the board would take action on this event, unless it’s part of a longer negative narrative or a stressful time for the CEO,” Kogut told Yahoo Finance in an email. “A good board however will surely engage the CEO on the behavior and will suggest actions, such as a coach or counselor, to help the CEO to stay on course.”

Comedian Kathy Griffin speaks during a news conference, Friday, June 2, 2017, in Los Angeles to discuss the backlash since Griffin released a photo and video of her displaying a likeness of President Donald Trump’s severed head. (AP Photo/Mark J. Terrill)

Mezger’s track record at KB Home will help determine his survival there, Kogut said. He noted that “a lot of CEOs have acted beastly at times,” though he acknowledged that the pressure in this case could be amplified amid an atmosphere of lower tolerance for this kind of behavior.

A long history of loud-mouthed CEOs

Indeed, Mezger is far from the first business leader whose temper has erupted in a loud and public fashion. Former Enron CEO Jeffrey Skilling infamously called a fund manager an “a–hole” on a recorded conference call back in 2001. Five years later, business-media darling Mark Cuban got fined $250,000 for outbursts after Game 5 of the NBA finals.

Meanwhile, Ted Turner managed to stay vice chairman of Time Warner (and then AOL Time Warner) from 1996 to 2003 while maintaining his reputation as “the mouth from the South.”

More recently, former Uber CEO Travis Kalanick got caught on tape berating an Uber driver. Even after that incident and a few other scandals, Uber’s board gave him their full support. While he eventually resigned under duress, Margarethe Wiersema, a professor at the business school at the University of California, Irvine, pointed out that the outburst alone was not the reason for his removal.

Still, Kalanick’s behavior appeared to be part of a pattern. In the case of Mezger, he’ll likely have to rein in his actions in the future.

“If the CEO has another blow out – I am not so sure that they [the board] will be as forgiving,” said Wiersema, whose specialties include CEO replacement. “He has been once warned.”

Erin Fuchs is deputy managing editor at Yahoo Finance.

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