09/11/2011 04:35 pm ET Updated Jan 23, 2012

Richard A. Moran: How To Fire A CEO

By Richard A. Moran, Ph.D.

Carol Bartz is a distinguished leader in the tech business with a track record of heroic proportions. She is highly regarded, not just as an executive but is an example of courage as a woman and cancer survivor. She was an executive at Sun Microsystems, the CEO of Autodesk, and, until recently, the CEO of the tech giant Yahoo.

So it was more than unsettling when she let out a blast this week to her staff explaining, "I am very sad to tell you that I was just fired over the phone by the Chairman of Yahoo." She followed that up with further analysis in an interview with Fortune: "The company's board f*&@#$ me."

What is going on? How can this happen?

It's not easy to fire a CEO. Nonetheless, I would guess that somewhere every day a CEO is getting the axe. The announcement might be couched in euphemisms such as "pursuing other interests" or "to spend more time with my family," or even "resigned under pressure" -- which is really not resigning. The phrase is just another way to describe being fired, terminated, canned, pink-slipped, shot, or, more gently, "let go."

When it's time for an organization and a CEO to part, it is usually like a romantic break up -- messy and full of emotion. Power, humiliation, and big money is involved. But unlike romance, there is never a question of "who dumped whom?" When it comes to CEOs, it is always the board who dumps the CEO. So why isn't there a manual? Why aren't there training movies? Why is the exit handled so poorly so often?

I have seen CEO exits from all perspectives and I have learned a few lessons along the way. Given the legion stories about their bad behavior and rampant hubris, it may be difficult for most people to empathize with the CEO. But, hey, they have feelings too. Here is an example of how those feelings can get hurt.

Susan was the CEO of a fairly large consulting firm. She was proud and confident of her achievements and the firm was growing like crazy. The employees were impressed by her leadership and were proud to follow her into "business battle." The Chairman of the Board thought she might be a little reckless and was always offended by her style. Some regarded her as confident, the Chairman found her brash. The Chairman summoned her on very short notice to come to his office. She dropped everything, hopped on the plane and flew cross-country for what she thought might be a meeting about an acquisition.

She took a limo from the hotel directly to the Chairman's office and when she went to take her bag out of the trunk, the limo driver said happily, "No need Ma'am, I've been instructed to wait for you and take you right back to the airport." She went in, and five minutes later was back out, having been terminated. In effect, she had just been fired by the limo driver.

For any leader that breaks the law, tweets unusual photos, or throws billion-dollar birthday parties, there is not a big need for much explanation. Susan's case was far more ambivalent. Her flaws were impossible to prove, since they boiled down to style and perception. Other leaders are just not cutting it and, for the good of all, need to be replaced. But how? Like a prenuptial agreement in a marriage, such agreements with CEOs are only entered into because no one ever thinks they will be needed. But things happen that cause break-ups.

They say there are two kinds of CEOs: those who have been fired and those who will be fired. A primer on how to fire a CEO doesn't exist, but here's where one might begin....

Rule # 1: Tell the Truth. When the following sentence is spoken: "The board has lost confidence in the CEO," the world shifts to when the CEO will be gone, not whether. No one likes confrontation, but when confidence is lost, the job is soon to follow.

Rule #2: Results Matter. If goals and numbers around those goals are clear, there should never be a question about the CEO's merit. Most leaders are gone because they haven't achieved results. That should be a simple transaction: as in, you promised x, you delivered x - n, so you are gone. But that is never a simple transaction.

Rule #3: Avoid Limbo. When the board has lost confidence, and the results are not there, no need to wait. Torture can include such vehicles as pay reductions, public embarrassment or starting a search that the sitting CEO will surely find out about. There is never a good time for these kinds of transitions.

Even when these three rules are followed, even if there have been poor results for a long time, the CEO will always be surprised when he or she is terminated. Now and then, a CEO may even want to get fired because it triggers a clause in the contract which may enable him or her to make more money by not showing up rather than residing in the corner office every day.

Boards are not innocent in this process. Board members can worry over the CEO transition for months or years while the organization suffers. For their part, boards are usually guilty of some of the following:

  1. Boards underestimate the emotion and damage involved in CEO transitions.
  2. Boards underestimate how long it takes to replace a CEO.
  3. Boards ignore succession plans.
  4. Boards wait too long before they pull the trigger.
  5. Boards second-guess the decision after it is made.
  6. And, sometimes, boards get talked out of it by the fired CEO.

An oft-repeated phrase among boards of directors is that the most important thing they do is hire and fire the CEO. Then, one wonders why most boards perform both tasks so poorly. This is true whether the organization is a multinational billion-dollar corporation or the local nonprofit trying to get rid of the head of the food bank.

Richard A. Moran is a San Francisco-based venture capitalist, social scientist, author, and evangelist for organization effectiveness. To buy his latest book, Sins and CEOs: Lessons from Leaders and Losers That Will Change Your Career, and to read his blog, visit him on Red Room.