Analyze This

When It's Time To Fire The Boss

By Kerry J. Sulkowicz
Featured on Business Week

How does a board of directors go about firing a CEO or persuading him to step down? It’s a question I’m asked more often, as CEO turnover increases–in part because of greater board accountability–and as abrupt departures, like that of Robert Nardelli of Home Depot (HD), are in the news.

When directors call me in to help figure out if, and how, they should remove a chief executive, they typically need the most help in dealing with their attachment to the CEO. Some directors have friendships with him. Others identify with him, as CEOs themselves. Still others can’t admit they might have been mistaken when they supported (or even hired) him. This isn’t true in all cases. But in my experience, it can take months of moving through denial, guilt, and anxiety before there’s agreement that the boss has to go.

The process at one company I advised is a case in point. Since the CEO had been hired a few years earlier, share prices had been flat. But the stock wasn’t the big problem: He was a disaster as a manager, abusing senior executives to the point where several excellent top execs had quit, putting the business strategy in disarray as well. Several of the directors, though, had helped pick him and treated him like a favorite son. So when I presented my frank assessment of the CEO and his troubled team dynamics, as asked, they hesitated to accept it.

As I met with them, I raised the possibility that this might stem from a reluctance to admit that they hadn’t done due diligence about the CEO’s personality when they hired him. (I’ve found that interpersonal skills and cultural fit often don’t get enough weight when boards hire a new CEO. But that’s another column.) Seeing the truth amounted to admitting their own failure, not just the CEO’s. Their egos required some soothing before they could take the right action–and spare their CEO unnecessary humiliation. They felt guilty, as well, having to ax someone they were accustomed to supporting.

I SPENT a lot of time discussing all this one on one with the chairman and directors before talking to the entire board. It was crucial to get complete buy-in. When the board finally decided to terminate the CEO, there were further debates about what to say (the language we worked out left no room for negotiating the decision but helped the CEO save face) and who should say it (the chairman and a director who was close to the CEO delivered the news together). More anxious discussions followed–trying to anticipate damage in the press and to minimize business disruption. The entire ordeal took an emotionally draining three months. But once the CEO was gone, there was a sense of liberation. The intense internal focus ended. People got back to work.