BusinessDay 09 Apr 2018

34 BUSINESS DAY C002D5556 Monday 09 April 2018
BUSINESSINTELLIGENCE
In association with
Firing The CEO
A
major responsibility of
the Board is selecting
the CEO. It must therefore
ensure that it picks
the right CEO and puts
in place a succession plan that allows
for smooth transition. With
increased responsibilities and more
stringent regulatory oversight,
Boards need to ensure that they appoint
CEOs who will allow them to
go to sleep with both eyes closed.
The Board also has the responsibility
of setting Key Performance
Indicators against which the CEO’s
performance will be measured and
appraised. More often than not, the
KPIs are tired to corporate performance
and many Boards don’t have
a formal framework for appraising
the CEO’s performance. It is good
practice for the Board to define robust
KPIs for the CEO beyond cor-
porate performance. These should
include the CEO’s leadership of the
team, client/customer relationship
management, corporate culture,
employee development, managing
key stakeholders, etc.
Closely following the responsibility
to select a great CEO is that
of ensuring that a succession plan
is in place. Oftentimes the Board
does not pay sufficient attention to
the senior leadership pipeline and
delegates this responsibility to the
incumbent CEO. The Board should
ensure that there is appropriate capacity
and competence at the level
below the CEO and indeed across
the organization. It should not take
the CEO’s word for it, but sufficiently
engage to ensure it has comfort in
this regard. With a healthy pipeline
of senior leadership, the impact of
sudden CEO exit can be minimized.
Firing the CEO is one of the most
difficult tasks any Board will have to
deal with. However, there are times
it becomes inevitable to do just that.
Where the CEO persistently does
not meet set KPIs, fails to execute
strategy, delivers non-inspiring
leadership or “puts the company
in trouble”, the Board may be left
with no choice but to let him/her
go. Firing the CEO could negatively
impact the organization. For sure it
comes at a significant cost. Some of
the costs of firing a CEO are easy to
measure. “Golden parachute” severance
pay for example, are sometimes
included in CEO employment
contracts. Unless the CEO has been
found complicit in some criminal
or other underhanded matter, the
company usually must pay up according
to the terms of the contract.
Some severance pay run into multiples
of annual salary and bonuses.
Another cost is that of replacing
the exited CEO. Great CEOs don’t
grow on trees and the process of
recruiting the ideal candidate is not
cheap. Beyond the fees of executive
selection firms (many of these firms
charge a percentage – sometimes
in multiples - of the CEO’s salary
and bonuses), the sheer time and
effort that go into an unplanned
exit, cause the Board to give careful
thought when taking a decision to
fire the CEO.
There could also be the cost of
losing business relationships which
the departing CEO brought on
board and nurtured. Some clients
may choose to take their custom
elsewhere with the departure of the
CEO who courted them. Depending
on the depth and nature of business,
the effects of these could be
2018 Academic Session
Theme:
“The Company Secretary: The Corporate Governance
Professional”
Company Secretaries, In-­‐House Counsel, Interns, Compliance
and Regulatory Officers, Lawyers and Chartered Secretaries
Date: April 25 th & 26 th 2018
Location: Green House, 235 Ikorodu Road, Ilupeju, Lagos.
Enrolment & Registration: N100,000
Modules:
significant. The peculiarity of some
businesses makes it difficult for the
Board to mitigate the likelihood of
this happening. Sometimes, the
CEO’s personal connections constitute
a large chunk of the patronage.
Non-financial but equally
damaging effects of the CEO’s unplanned
exit include the impact
on employee morale, especially
among senior managers, who may
wonder if theirs will be the “next
head on the chopping block”. If the
CEO was fired for taking a “risky
bet” which went awry, employees
will be less willing to take risks – a
situation that will inevitably impact
performance. There is also the
possibility of mass exit – especially
if the CEO was admired by his colleagues
and goes on to either set up
his own shop or to another organization
from where he “poaches” his
ex-colleagues. To be sure, some clients
would also move with the CEO,
particularly if the perception is that
he/she has been unfairly treated.
There is also the cost of perception.
If not properly handled, the
CEO’s exit could send negative signals
to the public. It could create
the impression that the company
is “in trouble” and inevitably affect
the share price – at least in a mature
stock market.
According to James McRitche
in his article “When the CEO Really
Must Go” (2011), there is never
a “good time” to act, “so do it when
you make the decision”. Many underperforming
CEOs think they are
doing a good job. In this regard, the
Board must tell the truth early on.
The CEO shouldn’t get a bonus he/
she doesn’t deserve because the
Board doesn’t want to “demotivate”
them. If the Board is not getting the
expected results, it should communicate
this clearly to the CEO.
Upon coming to a decision that
firing the CEO is the best in the
circumstance, the Board needs to
handle the exit with great care. The
CEO should be allowed to exit “with
grace”, quietly so that both parties
can move on without bad blood.
• Effective Minutes Writing
• Effective Use of Board Committees
• The Duty of Confidentiality
• Understanding Financial Statements, Key Financial Ratios and IFRS
Provisions
• The Corporate Governance Framework
• Preparing for Meetings – What the Company Secretary Should Know
• Regulatory and Statutory Compliance
• Effective Stakeholder Relationship Management
For enquiries and registration:
• Nike Taiwo: ntaiwo@dcsl.com.ng or08090381864 |Mobile:08052800715
• Anne Agbo: aagbo@dcsl.com.ng or 08090381864 |Mobile: 080053038482
Bisi Adeyemi is the Managing
Director of DCSL Corporate Services
Limited. For comments and
reactions, kindly contact badeyemi@dcsl.com.ng.