Citigroup Inc.'s directors stood by Chief Executive Charles Prince last week as the nation's largest bank reported a 57% drop in third-quarter earnings. But the expression of support did little to allay speculation abut Mr. Prince's future. The reason: Boards of directors of struggling companies typically trumpet their faith in the chief until the day they force him or her out.
Deciding whether to unseat a leader poses a dicey dilemma for directors. Wait too long, and they risk letting a bad situation get worse. Act too quickly, and they may short-circuit a potential recovery and create a demoralizing power vacuum.
"Nobody has mapped this process so well that they could give you a cheat sheet," says Paul Danos, dean of the business school at Dartmouth College in New Hampshire and a director of General Mills Inc. and BJ's Wholesale Club Inc. Frequently, Mr. Danos suggests, the decision comes down to "whether you have someone to replace him with."