Five things you need to know when you are

About to fire your CEO? Do it right!

by Ruth McGowan

Five things you need to know when you are

About to fire your CEO? Do it right!

by Ruth McGowan

by Ruth McGowan

“Our organisation is seeking a different leadership style going forward“. “The Board wishes to test the CEO market and see what’s out there”.  “The Managing Director has decided to retire.”

Sound familiar? From the leadership of this country to your local council, lately, it seems a lot of bosses are getting the flick.

Last month, Prime Minister Malcolm Turnbull was rolled by his party colleagues (without much explanation). Then there was the termination of the contract of ABC Managing Director Michelle Guthrie by the ABC Board (for her ‘leadership style’). And now, Elon Musk has been forced to step aside as Tesla chair (because of a legal settlement).

Add to this the high level of CEO churn which has hit more than 50% of Victorian councils and it seems that ‘giving the boss the boot’ is becoming increasingly common.

If you find yourself in the position of needing to ‘move the CEO on’ would you know what to do? Or, how would you respond if your CEO drops a bombshell that they are leaving and hands you their resignation? Do you have a plan?

Most Councillors and board members at some stage of their term need to contemplate a change in the CEO. If this happens to you, get the next steps right. Otherwise, risk reputational damage to the organisation, impact staff morale and incur excessive legal costs or a media backlash.

Should you sack the boss?

Showing your CEO the exit door is not a decision to be taken lightly. On one hand, the costs to the organisation are significant. Not to mention the personal costs to your (soon-to-be-former) CEO.

Replacing a CEO is time-consuming, expensive, and potentially disruptive – the implementation of board decisions can be left in limbo, staff morale can plummet and there is always the risk that the new CEO will not perform any better. Before rushing to dismiss the CEO, the board must balance the costs of replacement against the potential benefits. Better Boards

On the other hand, if you have been elected to a local council (or appointed to a board), you have an obligation to recruit and manage the best talent possible to lead your organisation.

Sometimes it just doesn’t work out. The CEO may have a different focus for the direction of the organisation that is incompatible with the council or board’s vision. Alternatively, if you have lost faith in the CEO’s leadership or if they are under-performing, you have a duty to move them on. Especially if they have acted illegally or unprofessionally.

Do it right

If you’re contemplating sacking the CEO, here are some points to consider before putting the boot in.

  1. Plan the transition

Before the firing the CEO put these three plans in place; the CEO performance plan, a communications plan and a succession plan.

  • The CEO performance plan is the main tool to assess whether your CEO is meeting expectations.
  • Once the decision has been made, the board/council should develop a communication strategy around the announcement which will be made by the Chair/Mayor.
  • Then, ideally, the board or council will implement a succession process for either the retiring CEO to gradually transition out of the organisation or they will appoint an executive manager to step into the acting role during the recruitment process for a new CEO.

Also, consider the timing of the decision. Ideally not before or just after local government elections when stability in leadership should be a priority.

  1. Utilise the Performance Plan

The CEO Performance Plan is the evidence base which ideally informs the decision to end the CEO relationship with the organisation. Managed well, this Plan will illustrate the trends that identify problems and help to justify subsequent action to terminate a contract. For example, feedback could show a surge in staff turnover, scathing feedback from stakeholders or plummeting staff and community satisfaction results.

If the CEO is under-performing or failing to meet board/council expectations, the case should be clear and mutually agreed; the CEO needs to move on. Don’t leave it too late.

“Academic research shows boards err on the side of taking too long to change CEOs. In some cases, underperforming CEOs remain at companies for years before change is made and only leave after a crisis,” AICD 

If the CEO is planning to retire, or maybe has career ambitions elsewhere, the performance planning process can facilitate frank discussions about his/her intentions to leave. The exit can then be managed in a way that minimises disruption for the organisation.

  1. Manage the message

A communication plan is imperative to manage the messaging around the reasons why the CEO was ‘let go’.  Implement the plan with advice from communication specialists and legal and ideally, input from the ex-CEO so that his/her dignity and reputation can remain intact.

It is important to clearly explain why a CEO has been fired and to be as honest as possible in the circumstances.

The message should then be delivered with authority by the Mayor (or Chair of the board).

If you are stuck, here are some well-used phrases:

  • We are seeking a change in direction for organisation leadership
  • We’ve decided we needed to test the market and see what’s out there
  • We will not be renewing her contract as we seek a change in leadership style
  • He’s resigned for family (or personal) reasons
  • He’s accepted employment elsewhere for his career development
  • The CEO has tendered her resignation to explore other employment opportunities
  • He has decided it is time for him to retire
  1. Follow the rules

Before you fire a CEO, seek legal advice and ensure you follow applicable employment law as well as the specific clauses in the CEO contract. Check the fine print!

Ideally, have the severance package approved and ready to go. It will be a vital part of that difficult conversation the Mayor (or Chair) will need to have with the CEO to let him/her know that time is up.

Be fair in the redundancy package but avoid the legal implications of paying out too much (a mistake made by the City of Ararat Council and investigated in a state government commission of inquiry in 2017.)

  1. Have a strategy for what next

Following the announcement, the Councillors (or board) now need to consider what’s next?  At this point, the continuity of organisational operations is the main consideration.

It’s now time to pay close attention to addressing the disruptions that will inevitably occur with the changes following the termination of a CEO’s contract.

As people adjust to the change, this time can also be an opportunity to signal a refocus of the organisation.

It’s also important the Councillors (or Board members) use this time to have frank discussions and reflect on what has been learnt from the experience. For instance; is there a need to refine the CEO position description? How well were expectations communicated to the CEO through the performance plan process? How can support and feedback to the CEO be improved in the future?

You will get through this

The various stages of the grief cycle predict acceptance will eventually follow on from the initial shock and anger that may surround the news of the firing of a CEO (or the departure of one who’s been there forever).

If you find yourself in the position of having to fire the boss, you will get through the next stage with care and planning.

Ruth McGowan OAM is a consultant, coach and trainer to local government. She supports Councillors as an independent, expert adviser in the recruitment and performance management of their CEO as well as the departure. As a former Mayor, Councillor and a member of a number of boards she has first-hand experience of having to ‘move-on’ the CEO. Follow Ruth on LinkedIn

 

Leave a Reply

Your email address will not be published. Required fields are marked *

Top