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Written by Jane Halford

CEO transition is often an overlooked responsibility of a board. While most exits and arrivals of CEOS are an amicable, orderly change from one leader to the next, not all leadership handovers can be that smooth. Sometimes, an organization’s board has to make the hard decision to terminate its CEO. Leader terminations are inherently sensitive and if mishandled, the resulting damage can trickle down into the organization as a whole and cause even greater dysfunction.

Understand the consequences of terminating your CEO versus keeping them on and maintaining their current performance or behaviors.

Which option will become a greater liability to your organization in the long run?

According to Private Company Director, one third to half of CEOs leave (including getting fired) within 18 to 24 months of being appointed. This can be due to aspects that cannot be rectified such as misalignment with the organization’s values and inadvertently clashing with the organization’s culture, or due to lack of resources or support needed to set up the CEO for success. For these situations, the first action of the board needs to be to diagnose what has actually happened during the CEO’s first months on the job. Don’t assume that the board has hired wrong or that your CEO can’t turn the situation around. Often, we see that one significant miss on context or relationships can create a downward, but not fatal, spiral for a CEO.

Whether your CEO is newer or long-serving, performance (including behavioral issues) can cause the board to start questioning whether it is time for a leadership change. It’s crucial to know when your CEO’s behavior can no longer be ignored or improved over time. After all, termination is not to be taken lightly.

There are steps to be taken to determine if your board has done everything it can to alleviate the most critical issues with the CEO.

Have you worked alongside your CEO to improve their performance through productive, actionable feedback? If they are committed to improvement, a termination may be mitigated. Similarly, a CEO can’t be expected to know how to do everything. Thus, surrounding them with a team of experts whose skills complement theirs will help fill those gaps and ease the CEO’s leadership role.

If issues continue to escalate, however, the CEO’s leadership style or skill set may not be compatible with your organization’s strategic direction or culture. Make sure these concerns have been documented over time and addressed with your CEO before you make any formal moves toward termination. When the deteriorating relationship with your CEO can no longer be ignored or improved, it’s time to consider termination. Take the time to ensure this transition process is as sensitively and compassionately handled as possible. And, make sure it is properly documented and delivered with the support of external advisors such as legal, human resources, outplacement, and communications professionals. It takes a strong, external team to work with the board to minimize the disruption of this abrupt and public change.

Here are ways to design a respectful exit strategy when terminating your CEO:

Know when it’s grounds for termination–– There are many reasons you might come to the conclusion it’s time to terminate. Assess the situation to identify any key issues, whether it’s a matter of performance, culture, or strategic misalignment. No matter what you do to alleviate the problem at hand, sometimes a poor fit cannot be fixed. When the CEO actively breeches the organization’s core values, it can erode its reputation, morale, and stakeholder trust. At this point, it is sometimes more of a detriment to keep them on.

Go into the CEO termination process well informed and prepared.

Build your transition plan ahead of time–– No matter how unpleasant it is to consider this possibility, it’s important to strategically prepare should an unexpected CEO change ever become a reality for your board. Preparing for any eventuality well in advance, through a CEO transition playbook, can help alleviate the stress that comes with high pressure decisions like these. This affords you the flexibility to adapt more seamlessly to the situation at hand regardless of the reason – illness, termination, death, or resignation. For example, prepare in advance to know who, inside and/or outside of the organization, can be considered to act as the interim CEO, if needed.

You will need to review the organization’s policies to clarify roles and responsibilities within the time of a CEO transition.

Alongside this, you will need to compile all relevant documents, especially any employment agreements or contracts that outline the agreed upon severance package and further benefits offered from the onset of the CEO initially taking on the role.

Craft a respectful exit meeting–– A lot of moving pieces are involved in the exit day itself. As such, it is crucial to consider having the exit meeting with your CEO in a neutral environment with a member of the board and someone else to act as a witness. Frame your message to the CEO in a clear manner that leaves no room for interpretation. They must understand that the decision is final and non-negotiable. Often times organizations will use an external human resources, legal, or outplacement advisor to present the settlement documents, collect any keys, devices, or access cards, and accompany the former CEO from building. After the exit meeting, the announcement will be made to the team and they can arrange to remove access to buildings, IT, bank accounts, and the organization’s website. In some cases the IT leader can be notified in advance of the termination to be ready to remove access during the exit meeting. However, this may not be appropriate in all cases. If that’s your reality, the CEO should be accompanied until the IT lead can be notified to remove access and all of the organizations devices can be retrieved from the CEO.

Remember, once your CEO is formally terminated, your priority is protecting your organization.

It will be necessary to monitor for any unusual activity in any of the places that the CEO had access. That could include IT, social media, and banking. Next, the organization needs to move quickly to assign those accesses to the interim CEO to ensure they are able to meet their responsibilities.

Maintain leadership continuity–– As with any leadership transition, continuity within your organization is paramount. Let your team and board members know about the situation once the exit meeting is complete. Encourage questions and be open to their responses. The organization’s team will want to be kept up to date on developments to ease their minds in the face of uncertainty. It is also critical to move as quickly as possible to notify external stakeholders and the public with a concise, transparent, and clear communication to reassure them that a solid transition strategy is in place to keep programs and operations running effectively.

Your board is the steward of your organization. You will have the best big picture insights to indicate when it’s in your organization’s best interests to initiate a leadership change. Be aware of when your CEO has become a detriment to your organization’s health. Termination may be a daunting process, but with the right plan and expert advice on hand, you can protect your organization and set it on an even stronger path.

Further Reading:

Dealing with a Forced CEO Succession, Private Company Director

A Board Member’s “Go Bag” for the Unexpected CEO Termination, NYSE

When to Fire Your CEO, CFEG

Careful Planning Needed to Fire the CEO, Canadian Lawyer Magazine

What to Do BEFORE You Fire Your Executive Director, LinkedIn

Terminating the CEO, Watson Advisors Inc.

Download our free CEO Transition Resource Kit tailored for boards, senior leaders, and CEOs.

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