When the CEO Has To Go
By Davia Temin

Best practices when sending a pink slip to the corner office.

With the explosion of the #MeToo movement, CEOs — like other executives — are being accused of sexual harassment or inappropriate behavior more than ever before. And after an investigation, if found guilty, more are being shown the door.

Our Temin “#MeToo Index,” which has cataloged all of the serious allegations since December, 2015 (when Bill Cosby was first arrested), has logged accusations against 32 public company CEOs or presidents, 29 private company CEOs or presidents, and 18 nonprofit CEOs or presidents to date. Approximately 89% of those accused have either resigned or retired, or were fired or suspended. Approximately 30% were fired outright.

But one of the most challenging tasks for any board is firing its CEO.

Often the CEO has been an integral part of bringing on the very board members who must then turn around and make the decision to terminate his or her tenure. Or, they have been a part of the search committee that chose the CEO in the first place. They have a vested interest in the leader’s success, and to fire that CEO can be seen as the board’s public admission of failure.

No succession plan, no matter how sophisticated, prepares a board member for that.

Every allegation puts a huge burden on the board to conduct a full, fair, independent investigation swiftly and then take appropriate and fair action, depending upon the results. But when the evidence shows that the CEO must be terminated, the pressure is extraordinary, plus all eyes — internally and externally ­— turn to the board, to judge how dispassionate and equitable they will be. And make no mistake, both pressure to condemn and to exonerate is fierce.

A board must be quite experienced, and truly dedicated to good governance and best practices to survive the pressure.

It is easier for a board to fire its CEO if the CEO has engaged in egregious behavior. Sexual misconduct, fraud, theft, grand malfeasance, steep drops in share price and consumer confidence, or other serious conduct unbecoming; all of these behaviors will make it easy for the board to act. No gray zone there, reputational risk now dictates that the organization clearly cannot allow someone who has acted in such a manner to remain.

But the task becomes more challenging the more nuanced or ambiguous the issue over which the CEO will be fired is. Perhaps the company’s strategy just seems off, or moribund, or not future-oriented enough. Perhaps the company’s executive committee has turned against him or her, or perhaps a cyber-breach was essentially mishandled, but all else is going well. These situations can challenge the will, and the shared vision of the board.

Moreover, even the strongest boards have divisions in them. Usually they are healthy, but the greater the stress, the greater the crisis (and firing one’s CEO is surely a crisis), and the more those divisions can turn into fissures, and sometimes into complete breaks.

How can boards hold themselves together, and begin to act from best practice rather than personal loyalties? 

Make sure every director puts the strength and viability of the company and its stock above personal interests and loyalties. This is best done before a crisis occurs. The world is moving away from cronyism on boards, and your board must do the same. Boards need to prune out not just the dead wood from their boards, but those who are bored, checked-out, or not fully committed in the best of times.

Practice crisis behavior and decision making. You can engage in scenario planning — we call ours Crisis Games — and they are great because they allow board members to see who is strong in a crisis situation, and who is not. Work on your board dynamics before a crisis begins.

Empower the executive committee of the board to do all the heavy lifting in deciding to terminate the CEO. Then, fully inform the board and seek a unanimous front. Take as much time as is needed to complete deliberations and socialize them appropriately. Unless there is a truly time-sensitive aspect to the decision, it is best not to rush into action without a watertight strategy.

Make sure that every deliberation is completely confidential. Everything is more porous than it used to be, even boardrooms. Make it clear from the outset that confidentiality must be absolute and forever.

Engage in impeccable and strategic communications with all appropriate constituencies. Ensure that the board chair communicates continually with the rest of the executive committee and board. Have a fulsome communications plan when it comes time to make the decision public — with every constituency. Put in plans to deal with leaks over social media, a reality of life and leadership today.

It used to be verboten to appoint a board member as interim CEO, but that taboo seems to have weakened substantially. As the board considers its interim CEO, as well as its search for the next CEO, if any board member could be a serious contender, be modern enough to explore the possibility. CIT Group and United have both had relatively good experiences with this strategy. 

Try to let the CEO go in a way that does not damage the reputation of the organization, if possible.  Our research has found that many companies are now announcing an investigation and dismissal at the exact same time ­— some without even enumerating the charges. No one wins in a prolonged, pitched outside battle. Seek to avoid it if possible, but only if you’re sure doing so won’t potentially end up harming others or another organization down the line.

Try to do the whole thing with honor. The media, the internal audience and your various constituencies may well give you credit, and it is the right thing to do. It can smooth your path to hiring a far stronger, better CEO who will look quite closely at how the board handled the firing of his or her predecessor. Do it right and your probability of hiring a star for your next CEO will grow exponentially.

Davia Temin is the CEO of Temin and Company Inc.

 


Issue: 
2018 Fourth Quarter

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