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How to Fire a CEO

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Let's face it, CEOs get fired all the time.

CEOs with less than 5 years of experience are more likely than long-standing ones to be fired, so it's going to happen all the time but there are ways to do it, and ways not to.

Yahoo's firing of Carol Bartz is a great example of how not to. Don't fire a CEO over the phone, don't underestimate their grit, don't fire them without an agreed on communication plan.

Carol is known for her courage and her balls of steel. She had put a strategy in place where she told the board there would not be revenue growth until 2012 and -- whether you think she was right or wrong in her strategy -- the board should have predicted she'd be mad to be fired over the phone with no warning, with lawyers waiting for her.

And her response -- to send an email to all 13,000 Yahoo employees -- was classic Carol. And much more fiery than one of the last very few tech female CEOs, VMWare's Dianne Greene who went away quietly after a difference of opinion on her experience.

How to #1: If you are firing a powerful personality manage the communication by meeting with them in person! Or get someone you trust to do it for you, in person.

Mark Hurd's departure from HP provides more to chew on. In Mark we had another strong CEO with a strained relationship with the board. Facing allegations of expense fraud, a sexual harassment suit, broken trust and the specter of bad PR, the HP board fired their CEO and entered months of he-said, she-said. In this case the ousted CEO promptly went across to another Silicon Valley giant, Oracle, and one known to have a tougher, less PC culture. HP sued and then promptly settled 2 weeks later once they realized how important the Oracle business relationship is to them both.

How to #2: Make sure you have a strong separation agreement when you fire the CEO so if they take another job you can live with it and don't have to sue, and then settle. List the companies you really don't want them to go to, especially if you are in California, and put some financial teeth into it.

This week's hyped up HP rumors also highlight How to #3: Don't let leaks come out of the board room. Ever. Especially if you are thinking of firing your CEO. The level of detail coming out of the HP board room is astonishing for such a large public company.

On to #4. You can tell a company has not been doing a good job of succession planning when a board member needs to step into the breach. Usually there is someone who can take over in the interim, even if it is only the CFO. But in Axciom's case, parting ways with the CEO after a bad quarter, even the CFO didn't want to "keep commuting from Florida to Little Rock". It's probably a tough challenge for the new CEO Scott Howe.

It's never pretty when a CEO is fired but it can be done smoothly, take for example the abrupt resignation of BNY CEO Robert Kelly -- a deliberate, confidential process followed by the promotion of an internal leader, Gerald Hassell, into the top spot. Pfizer, when CEO Kindler also abruptly left was able to replace him with an internal candidate Ian Read.

How to #4: Do a good job of succession planning on a continuous basis so if you do need to remove the CEO you have internal candidates to seriously consider.

Which leads to the question what does the board do when they have to fire the entire senior team as the Cadence board did in October 2008? They were lucky to have a strong board member ready to step in and turn the company around, because there was no one senior enough internally left standing, although indications are the CEO, Lip-Bu Tan is now investing in How to #4.

Of course there are many more ways to fire a CEO but in the end the hiring and firing of the CEO is the single most important thing boards do. They are accountable to the shareholders and the CEO has more impact on the strategy, execution and leadership team than anyone else, so the decision of who to put in that position vastly outweighs any other decision a board makes.

It sounds easy. Be clear about what the company needs, have a clear and transparent process within the board for nomination and evaluation, have a strong succession planning process so you are developing internal candidates, keep confidentiality.

But it's not easy. It is incredibly difficult because companies, and human beings, are complex. Of course boards make hiring mistakes, or the needs of the company change, or the market changes and a CEO may no longer be a good fit.

So if you do have the misfortune to need to fire a CEO, at least make that a well-managed, dignified, confidential process.