I’ll get my coat

Shares
have plummeted, the board is in a panic and the media is glaring at you. Should
your chief executive clean out his desk or roll up his sleeves and get down to
it? Jane Simms finds out how to tell when your CEO’s time has come

A
few weeks after the Greek ferry Express Samina sank in the Aegean Sea last
September drowning 80 people, a senior executive of the company which owned the
boat leapt to his death from the sixth floor of his Piraeus office. Several
years earlier, after a Japanese jumbo crashed killing all the passengers, the
chief maintenance engineer took his life. Indeed, the Japanese have a
predilection for committing hara-kiri when disaster strikes: Japan’s recent
economic downturn spawned a gaggle of sobbing businessmen who, after emotional
apologies to their shareholders, fell metaphorically, if not literally, on
their swords.

British managers
rarely resort to such desperate remedies when the going gets tough. Yet,
increasingly, boards of troubled companies appear to be caving in to mounting
pressure from investors and the media for “Salome-style solutions” – a head on
a plate. Gerald Corbett, former chief executive of Railtrack, is a recent
example. The board declined his first and accepted his second offer to resign
after the fatal train derailment at Hatfield last October.

Chief
executives leave for various reasons, from being caught with their hand in the
till to being unable to cope with the pressure. But Anthony Cardew, chairman of
City public relations firm Cardew & Co, “falling on your sword is usually
the wrong thing to do”. If the chief executive has been fraudulent or corrupt or
if they have lost the confidence of the board and the investors resignation is
the only option, he says. “But where there has been an honest mistake, or a
problem has arisen that is not of your own making, to say ‘I’ve had enough, I’m
off’ rarely serves the shareholders’ interests. You are employed by
shareholders to fight their battles for them and it is self-indulgent to
leave.”

More
difficult, but more honourable and responsible, says Cardew, is to work your
guts out to restore balance to the company and plan your succession.

So
if offering your resignation is usually the wrong thing to do, when is it the
right thing to do? Ken Rushton, director of the Institute of Business Ethics,
says, “When a chief executive loses the capability or the authority to lead he
should stand down.” There are certain criteria demanded of a chief executive,
he says – and failure to deliver can signal the beginning of the end.

The
leader must be able to maintain the trust of the board and the investors.
Leaders also have to be strong moral and values-based role models. The chief
executive must sustain the confidence of the board and the investors. To lose
one or both can be disastrous.

This
happened to Sir Richard Greenbury, who resigned first as chairman and chief
executive of ailing retailer Marks & Spencer in February 1999, and then as
non-executive chairman four months later. Declining shareholder value,
autocratic bosses, disagreements with the board over management style and
strategy and low morale often lead board members and investors to question the
effectiveness of the chief executive.

Defensive
decisions

If
a company is in crisis, losing its CEO, however blame-free, could be the price
it has to pay for recovering its reputation. Corbett was arguably the best man
to lead Railtrack out of crisis, but aside from the enormous personal pressure
he was under, it was ultimately judged that he should be sacrificed to appease
the media.

Robust
independent non-executive directors and dialogue with investors should allow
companies to take measured decisions on their CEOs’ futures. It’s a simple
matter of whether chief executives have the right skills to address upcoming
challenges, says Ashley Summerfield, consultant at executive search firm Egon
Zehnder International. “The non-executives need to keep a constant pulse check
on that,” he says.

Poor
succession planning at Marks & Spencer compounded the company’s troubles.
Once the autocratic Sir Richard was pushed on to his sword, the company
appeared to scrabble around for a successor. Peter Salsbury was appointed chief
executive in February 1999, only to resign 18 months later. Salsbury could have
pulled the company through, given time, and some in the City believe the board
should have withstood media pressure.

This
is a problem for CEOs generally, says independent crisis consultant Michael
Bland. “Despite their tough image, chief executives are seething masses of
insecurity,” Bland says. “When crisis strikes they can become irrational, and
in such a state find it difficult to take – or even seek – objective advice
from others.”

Enlisting
the help of those around can be crucial. Nick Miles, chief executive of City
public relations firm Financial Dynamics, says, “Get advice from your PR
company, your brokers, your investment advisers – they are in touch with the
market. You must listen to the truth and then decide what to do. If the share
price is moving steadily downhill, it may be time to leave. But you are within
your rights to stand up and say ‘I can pull this company through’. And bloody
good for those who do.”

No
company gets it 100 per cent right all the time, adds Miles, but with humility
and a strategy CEOs can ride the storm. “Chief executives come under pressure
cyclically, but the wheel turns,” he says.

Graceful
exits

There
is little CEOs can do to protect themselves against dismissal. “A chief
executive can always be removed from executive office by the board, whatever
safeguards are in place,” says Bruce Hedley, partner in the employment unit at
City law firm Clifford Chance.

A
chief executive who has genuinely resigned should not be compensated – it would
be in breach of the Companies Act. But the situation is rarely that clear-cut.
If the board deems the chief executive should leave in the best interests of
the company, though that may be portrayed as a resignation, it is in effect
dismissal. As such, the individual’s contract has been breached and he is
entitled to compensation. But even those not entitled to compensation may
benefit from unexercised share options and long-term incentive plans, at the
board’s discretion.

And
if you fall on your sword, do you have a future? “Of course,” says Summerfield.
“You don’t get to that sort of position without great skills. Unless you have
been implicated in scandal or criminality, companies would be daft not to take
you on.”

Bland
says your conduct is more a measure of your success than your resignation. “If
you resign with dignity and honour you will be seen as a good chap and that
will enhance your future career prospects. People will remember your name, but
as an honourable man, and that gives you the chance to make a fresh start.”

Futher
reading

This
is an edited version of an article that appears in this month’s Director
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