Hold Them or Fold Them — What to Do with a CEO in the Midst of Controversy
I sometimes wonder
why anyone would want to be a CEO of a public company in today’s climate. Gone
are the days when CEOs were venerated members of the community. Today’s CEO is
much more likely to be facing off with aggressive shareholder activists, a
critical public or an unfriendly media on the hunt for an adversarial story. Unfortunately
for the companies that employ them, some of the attacks on CEOs are justified
because of their behaviors or decisions. When its CEO is embroiled in a scandal
or simply accused of mismanagement, what should a company do? When should a
company hold onto its CEO, and when should it fold, and hope to be dealt a
better hand the next time?
The best way to deal
with these scenarios is prevention. When first employing and negotiating the
terms of a CEO’s contract, consider what could go wrong and how your company would
deal with the CEO if things don’t turn out as expected. Think about how public
communications will be handled if faced with a CEO crisis. I have seen too many
poorly drafted executive contracts which limit a company’s options for handling
public- or investor-relations nightmares. Likewise, if the CEO will also be a
board member, pay attention to the board’s bylaws with an eye to these
worst-case scenarios. For example, do your bylaws allow a terminated CEO to
remain on the board? It’s better to know ahead of time, since it will likely
become more difficult to change these key terms in the heat of a PR disaster.
When planning for
these scenarios, also give careful thought to attorney-client privilege issues.
When will some of the communications truly have a likelihood of being covered
by the attorney-client privilege? Be very honest and conservative in this
evaluation — don’t assume that close calls will be protected. Instead, assume
the opposite and plan to communicate as if these communications will someday be
made public. Of course, you also need to consider the obligation to make public
disclosures as a public company and the timing of such disclosures.
The best way to know
when to hold or fold on the issue of an embattled CEO is to prepare for that
question long in advance, long before any controversy concerning the CEO
begins. Include the CEO in the process, and fight the knee-jerk reaction to
immediately fold if you’ve done enough of this advance work that you are
comfortable your position is defensible before the public, the board, the
shareholders, and any government regulators. Following these steps may help
make one of the most difficult issues for a company a little easier.