BACK OR SACK: CAN THE CHAIR FIRE A CEO ?
The decision to dismiss the CEO needs support of all the board
When I was first appointed as a CEO, the non-executive chair was a corporate veteran with many years of big company experience. At our initial meeting he delivered a pep talk, with what I now know was a rather unoriginal message. But at the time it was a new one to me and a bit disconcerting. His observation: “As chairman I will back you in all things unless the day comes when I have to sack you. And be clear - if that needs doing I will do it”
In the event the business thrived, and I survived. But some years on and several boards later, when I am now in the chair role myself, I have come to the conclusion his somewhat humorous warning was, in fact, an empty threat. In reality the chair cannot realistically and unilaterally fire the CEO. It is not just a two person power-play. If the chair does act that way it is a failure of board process and nearly always ends in disaster. This is one big decision where the board structure comes into its own.
CEOs are in a high profile role. They will be prone to missteps, mistakes and misdeeds. When things go wrong the ultimate sanction is a P45 (“pink slip” in America). But the issuance of that termination notice should be a collective decision. CEOs report to boards not simply to their chair.
Removing a CEO is a significant, risky, and expensive decision. It should result form a personality clash. The exit can be for bad or even criminal behavior where no payoff is warranted. It can be for more nuanced ethical issues where an employment contract may have to be honored or simply for under-performance and a loss of confidence in the person by the board . It can be external pressure from shareholders or internally from an unhappy leadership team. The worst reason is simply because of a breakdown of relations between chair and CEO. This ridiculous “handbags at dawn” scenario should never happen - but it does.
When the CEO of the London Stock Exchange , Xavier Rolet, stepped down after 8 years he got a multi-million pound payoff. It followed a widely reported dispute between him and the chair. A major shareholder weighed in, publicly, to demand the chair went instead and that the CEO remained. At the resulting EGM vote, the chair won. A shareholder noted: "This is a very sorry affair, which has brought considerable opprobrium on the company," In the event the chair was also gone within 18 months.
It should be easier when rules have been broken but often is not. The Board of McDonalds fired its CEO Steve Easterbrook for having a consensual relationship with a fellow employee. They approved a huge payoff. But eight months later more negative information emerged and the company sued him to return the US$100 million severance deal. The Board directors themselves then got sued for failing to exercise their fiduciary responsibility.
Jess Staley the CEO of Barclays was investigated by City regulators over emails between himself and disgraced financier Jeffrey Epstein. Initially the Barclays Board backed their CEO saying he had their “full confidence” – never a good sign. But he later resigned after the regulators reported negative findings. More than a year later more details emerged of a close relationship with Epstein and the directors of Barclays become the subject of acidic criticism for not digging deep enough.
When Alison Rose the CEO of Nat West was upbraided by Nigel Farage over alleged breach of banking secrecy her chair and board were, also, initially supportive of her continuing in post. But when government ministers weighed in the board changed its mind overnight and she stepped down. Farage then demanded the chair resign and the board announced a successor soon after.
I have been fortunate that I never had to exit a CEO for cause, but I have had to negotiate a departure after profit warnings and blunt message from shareholders. In honesty I did not want to do it but after discussion it was a unanimous decision of the board so I was the reluctant bearer of bad tidings.
CEO departures are sometimes inevitable, but they need not be dramatic and damaging. The role of a chair is not to fire a CEO but to listen to the board, other stakeholders and the CEO themselves. Assuming the chair and CEO have a relationship of trust they should then be able to negotiate a dignified exit. It should never come to back or sack. And if the problem is simply a bad relationship between the two and then it should always be the chair who goes as it is central to their job to stop this happening.
The chair is not the one with the unilateral power to fire. The real corporate world is not like The Apprentice of reality TV . CEOs are being unseated not by bad financial performance but by their leadership becoming untenable in the minds of the whole board following input from activists, their own staff, the media and politicians. CEOs have become public property, and chairs are becoming agents of all stakeholders to implement public opinion and “sack” when they have to.