Many say that the most important job of a company’s board of directors is to hire and fire the CEO. “We’re pretty good at the hiring part,” said Richard A. Moran, CEO and vice chair of Accretive Solutions. “That’s because hiring is outsourced. So if firing the CEO is the most important thing the board does on its own, then we need to get better at it,” Moran explained to a gathering of directors and corporate governance specialists at the NACD Board Leadership Conference 2011, held today in Washington, D.C. Almost all of the session’s attendees reported being involved in the firing of a CEO in the past, describing the experience as “not fun,” “interesting,” and “not tidy.”
With the recent firing of Yahoo CEO Carol Bartz and HP CEO Leo Apotheker still fresh in attendees’ minds, Moran provided advice on saving face during the inevitably awkward situation. Being open and honest, focusing on results and confronting big issues as they arise will help ensure a smooth transition, Moran said.
“There’s never a good time, there’s never a bad time,” he said, but when it’s necessary, “you just need to do it.” He cited an example of an executive who had been called to New York City from California to meet with the CEO. As he arrived and attempted to take his bags from the trunk of the limousine, the driver informed him that he would not need to – his next assignment was to bring the executive back to the airport minutes later for a flight back to the West Coast.
“In effect, he’d been fired by the limo driver. Why didn’t he know he was about to be fired?” Moran questioned, noting that most self-aware individuals would sense they were under-performing, or would have taken hints from the board that his tenure may have been approaching an end.
Moran cited a number of possible signs that a CEO is about to be let go – from hiring a large number of consultants but offering no visible signs of progress to overly dramatic board meetings. As far as reasons for a board to need to issue a corner office eviction notice, it differs for every company’s situation. Some may be egregious problems in the public eye, such as with BP’s Tony Hayward, or may just be a more subtle incorrect fit for the company.
One thing was almost guaranteed, though, Moran said. “Compensation will be an issue,” and it is advisable for companies to keep a compensation specialist on hand to guide the board through the exit compensation plans.