On Firing the CEO at the Right Time

Mark Lonergan, September 11, 2011

I am sure you all have been discussing Carol Bartz’ termination (over the phone no less) from Yahoo last week. As an executive recruiter for over 20 years and the veteran of many CEO searches myself, I often witness the state of the organization shortly after the senior leader has been issued his/her walking papers. The way a termination is done and the timing for a termination are often more important to the remaining organization than the termination itself.

As head of programs for the National Association of Corporate Directors Silicon Valley, I am particularly excited about our September 15th program offering titled “When the CEO Really Must Go,” headed by long-time Board member and venture capitalist Rich Moran. In anticipation of learning a lot at the program about the right ways to deal with CEO termination, I polled a number of top recruiters in Silicon Valley to hear about what NOT to do in a CEO transition. Here’s what I heard:

  1. The Board has unclear expectations and goals for the CEO. There is typically plenty of discussion at board levels about company strategy and operational performance. Many boards do a poor job, however, of communicating the expectations of the board to the CEO around personal goals and the metrics associated with success. While the CEO is expected to create revenue growth and greater profitability, they can easily fail around bigger picture goals with respect to innovation, corporate development, culture and strategy
  2. The Board has little communication with other senior managers. It’s astonishing to me how little most public boards know about the senior leadership team. When a board is really unhappy with its current CEO, various members will attempt to fix this issue by inserting themselves into the company. Then it’s too late. The best boards spend time regularly with senior management team members as a matter of policy, getting to know them as people.
  3. The Board has done little or no succession planning. As CEO recruiters we’re often asked by boards to consult on succession planning programs, to benchmark those programs and to analyze their approaches. Our first question is always the same: (1) Is there a pool of exceptionally talented general managers within your organization, world-class managers who can one day run this company? (2) Are you cross-training these superstars, giving them the skills they need to succeed as CEO? 75% of the time the answer to one question or the other is “no,” making us believe that there is no REAL succession planning at the company at all.
  4. The Board waits WAY too long. This is the worst sin of all, and the one that often costs boards the most heartache. Our interviews with board members indicate that boards usually know 12-18 months beforehand that a CEO should be turned over. When asked why they waited so long, board members shrug and refer to the challenges of building consensus. This is the typical response of a public company board even when all of the members formed the conclusion independently months earlier. The cost for this delay is inestimable. We’ve seen cases where companies have lost 80% of their market capitalization, many of their most talented managers and real momentum in the marketplace before they’re prepared to move. Sometimes companies can recover but often the damage is permanent.

For more details on this topic and to hear other experts engage in discussion, please the SVNACD site.

Mark Lonergan is the Founder and Managing Partner of Lonergan Partners. He specializes in CEO and Board placements in technology companies.