Will the company’s lack of transparency set a precedent for other boards or will it come back to haunt the bookseller’s directors?
By Eve Tahmincioglu
The government report by Barnes & Noble Inc. about the termination of the company’s CEO Demos Parneros, filed on the eve of the Independence Day holiday, was lacking key details about why he was getting the boot:
Mr. Parneros’ termination is not due to any disagreement with the Company regarding its financial reporting, policies or practices or any potential fraud relating thereto. Mr. Parneros will not receive any severance payment and he is no longer a member of the Company’s Board of Directors.
In light of the recent string of scandals involving top executives at companies — including Intel, Wyndham, Priceline, etc. — where the bad behavior was made public, Barnes & Noble’s lack of candor is atypical, say governance and communications experts.
"Barnes & Noble's termination of Parneros without communicating transparently about the cause is unusual but not unheard of,” says Zach Olsen, president of Infinite Global, a communications firm that works with organizations and individuals during crises.
“In this day and age, boards will do everything in their power to be clear about their reasons for making such a move, but often will be limited in what they can say due to the potential for related litigation,” he explains.
Barnes & Noble spokeswoman Mary Ellen Keating would not provide comment beyond the company’s release.
But do directors have a legal obligation to let shareholders and stakeholders know exactly what’s going on?
Barnes & Noble is “really walking on a thin edge of what’s required and what they can get a way with doing,” says Roy C. Smith, emeritus professor of management practice and the Kenneth Langone, professor of entrepreneurship and finance for at New York University’s Leonard N. Stern School of Business.
“They are clinging by their fingernails to the notion that, if it wasn’t material to the financials of the company that affects shareholder value, they are not required to disclose it. That’s technically true. I’m sure lawyers are parsing over the statements.”
“I think they just tried to bury whatever it is he did,” he continues, “and not have it be part of the public discussion about Barnes & Noble. But that doesn’t mean they can bury it forever.”
Smith acknowledges it is unusual for a board not to disclose the reasons for a top executive’s termination, but he sees Barnes & Noble’s board as an outlier overall given the number of CEOs that the firm has gone through in recent years.
“This is a very troubled company,” he points out, going through four CEOs in the last five years as it struggles to compete with Amazon and other online competitors.
“Any board that has been firing CEOs at the pace this company has done, obviously is not a usual board,” he says. “Although, it may be a board dominated by a powerful single shareholder, Leonard Riggio,” the executive chairman of the company who spearheaded its national expansion after buying the book chain in the early 1970s. “Normally board members are pretty passive characters and don’t just fire people, but if someone is telling the dogs what to bark, they do.”
You can’t say that this is an indication of bad corporate governance, Smith says. “It may be the best available option under the circumstances.”
Such decisions not to disclose key information about executives who are terminated, however, could end up causing more harm than good.
One example Smith shared was WPP, the British-based advertising giant. Earlier this year, the company’s CEO Martin Sorrell was let go but the board provided few details on why.
Since then, the company and Sorrell have been hit by a wrath of rumors and speculation on why the CEO was fired, including “whether he used company money for a prostitute,” according to a Wall Street Journal article.
Time will tell how things play out for Barnes & Noble and its board.
“The conservative approach they are taking leads me to believe this isn't the last we'll hear about the reasons behind the changes at Barnes & Noble,” notes Olsen.