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You're Fired! And We Really Mean It! [EMBIN (Emerging Markets Business Information News](EMBIN (Emerging Markets Business Information News) Via Acquire Media NewsEdge) When French pharmaceutical company Sanofi SA ousted Chief Executive Christopher Viehbacher last week, there was little question he had been fired. Board members complained about his uncommunicative management style, and Chairman Serge Weinberg made it plain that directors had lost confidence in the executive. “There was a lack of trust, the relationship wasn't close enough,†Mr. Weinberg said on a conference call. Not long ago, exiting CEOs like Mr. Viehbacher were dispatched gently, with an announcement that the leader would step down to spend time with family or pursue other interests. But as corporate boards strive to appear in control and play defense against activist investors, companies are dropping the niceties. Recent executive dismissals at Yahoo Inc. and Symantec Corp. show some firms aren't afraid to say that a boss has been fired and even provide details. Mr. Weinberg described how the board repeatedly asked Mr. Viehbacher for information he hadn't shared during meetings, and Mr. Weinberg described his frustration at being kept in the dark on a possible plan to sell a drug portfolio. Mr. Viehbacher couldn't be reached for comment. CEO dismissals used to be “shrouded and euphemized,†according to Donald Hambrick, a management professor at Pennsylvania State University's Smeal College of Business. He traces companies' more forthright firing style back to high-profile ousters in the mid-1990s at companies including Eastman Kodak Co. and General Motors Co. “A lot of boards take some satisfaction in being able to declare to the world that they fired the person,†Mr. Hambrick said. An obvious dismissal is a way for a board to signal that it's “awake and willing to exert itself,†he added. Firms' recent filings with the Securities and Exchange Commission are littered with mentions of terminations. In March Symantec came right out with the news that Steve Bennett had been “terminated†as president and CEO amid falling revenue and a slumping share price. And in January, Yahoo chief Marissa Mayer didn't try to hide the reason for the exit of Chief Operating Officer Henrique de Castro. In an internal memo to staff obtained by Re/code, Ms. Mayer said she decided he should leave the company. Mr. de Castro couldn't be reached for comment, and a Yahoo spokeswoman declined to comment. In other cases, the signals are more subtle. Hertz Global Holdings Inc. announced in September that CEO Mark Frissora was stepping down “for personal reasons.†Later that month, in an SEC filing, the company described the exit as a termination without cause. The management change at Hertz came amid disappointing results and accounting issues that had sparked an outcry from activist investor Carl Icahn and other shareholders. For boards facing challenges from activists, unceremoniously firing a CEO is a way to demonstrate that management is responsive to shareholder concerns, said Alan Klein, an attorney with Simpson Thacher & Bartlett LLP who focuses on shareholder activism and corporate-governance matters. Even when companies announce an executive's resignation, they increasingly drop hints about what really happened—provided you know where to look, Mr. Klein said. A firm-issued statement may highlight, for example, the fact that the company is headed in a new strategic direction, intended to imply that the board is in the driver's seat and the former boss was coming up short. When J.C. Penney Co. parted ways with CEO Ron Johnson in April 2013, the announcement was mostly devoted to its new leader's plan for the company, including a quote from the then-returning chief, Myron E. Ullman III , noting the “difficult period†the company had faced. The board's chairman described Mr. Ullman as “well-positioned to quickly analyze the situation [the company] faces and take steps to improve the company's performance.†Mr. Johnson said the board formally accepted his resignation on Monday, April 8, but he acknowledged that the perception is that he was fired. Language matters for executive departures. Executives fired for cause— typically a narrow list of serious offenses—can lose their right to severance; those dismissed without cause, or who quit under duress or other unusual circumstances, can sometimes claim bigger packages.The language that companies use to describe an executive's exit can have an impact on how much money they walk away with; generally, executives see a payout if they're terminated without cause, as opposed to with cause. Yet some boards may go too far, making executives into “sacrificial lambs†responsible for choices made with the full backing of company directors, said Mr. Klein. Research by Luke Taylor, an assistant professor of finance at the University of Pennsylvania's Wharton School, shows that 23.1% of all CEO turnovers at Fortune 500 companies were forced during the period from 1990 to 2006, up starkly from the 1971-to-1989 period, when 12.3% of changes in the corner office were involuntary. For each year from 1990 to 2006, an average of 3% of CEOs were forced out of office, up from 1.7% in the 1970s and 1980s. The 2002 Sarbanes-Oxley Act, which forced companies to make more financial disclosures, helped usher in a “landslide†of transparency that continues to pick up momentum, said John T. Thompson, a vice chairman of search-firm Heidrick & Struggles International Inc. 's global CEO and board practice. It has also, he noted, made running a company a more risky endeavor for bosses. As boards try to position departures in a way that will placate investors and satisfy the public, an executive's reputation doesn't matter as much.“Just a few years ago, boards would never say, 'We have a lack of trust in our CEO,†Mr. Thompson said. “They didn't want to damage the current CEO's future prospects.†But there's an upside: Fired bosses carry less of a stigma these days. Boards and search committees are less wary of CEOs who left their old jobs under a cloud, said Bob Damon, an executive with the search-firm Korn/Ferry International who works on executive and board recruiting, and directors are more willing to figure out why a particular boss was ousted and whether it matters for their company. As an example, he cited Mark Hurd , who won plaudits for reinvigorating Hewlett-Packard Co. but left in 2010 amid a scandal over a relationship with a female contractor. Mr. Hurd joined Oracle Corp. as co-president later that year and was recently named co-CEO. And sometimes CEOs themselves come clean. Last year, after Groupon Inc. fired chief and co-founder Andrew Mason , he made light of his ouster in a farewell memo to the staff. “After 4½ intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family,†he wrote. “Just kidding—I was fired today.†(c) 2014 EMBIN (Emerging Markets Business Information News) Provided by SyndiGate Media Inc. (Syndigate.info). |