This recent “exechange” report notes that roughly 10% of CEO departures during 2018 at the 1000 largest companies were related to conduct issues – and says that corporate boards are increasingly unwilling to tolerate bad behavior from CEOs.
The report reviews a number of recent high profile departures. It points out that some departures were handled very differently than others – and suggests some reasons why. Here’s an excerpt:
The fact that companies deal in various ways with their fallen CEOs may be related to the specific characteristics of their alleged misconduct. However, it may also highlight differences in corporate governance and raise questions about the independence of the board.
After allegedly or actually violating codes of conduct, CEOs were terminated or resigned “voluntarily.” In some cases, they left with a golden parachute, in others not. In a spectacular case, the board “reluctantly announced” that it had “accepted” the resignation of the CEO, chairman and main shareholder.
On the other hand, boards often take advantage of the opportunity to take the incident as a cautionary tale.
The report notes that in the past, if misbehaving CEOs were ousted, they were “rarely publicly shown the red card.” Instead, those departures were typically characterized in a more neutral fashion. In contrast, one of the striking things about many of the disclosures described in the report is the degree of candor displayed concerning the executive’s alleged misconduct. The times, they are a changin’. . .
CEO Transitions: What Should You Say After You Say “You’re Fired”?
So when you kick your bad actor to the curb, what should you disclose? As this Washington Post article points out, the SEC leaves a lot of that up to you. Here’s an excerpt:
How much detail must companies share when a CEO is asked to leave?
The answer: Not as much as you might think. Within four business days of making the decision, companies must issue a securities filing called an 8-K if a material corporate event occurs, and the departure of a chief executive certainly qualifies. It must include that the fact that the CEO is leaving, what kind of related agreements result from that departure (such as severance pay) and if the CEO is also a director — which a CEO almost always is — whether the departure is the result of a disagreement on “operations, policies or procedures.”
So that’s it, huh? Not exactly – check out our “Checklist: Officer Departures- Procedures” for a more comprehensive breakdown of things you need to think about when you’re transitioning a senior exec.
Activism: When “Santa Claus” Attacks
Here’s something I recently blogged on DealLawyers.com: If shareholder activism ever had an “everybody into the pool” moment, it probably came last month when Berkshire-Hathaway announced that it would withhold support from USG’s slate of directors at its upcoming annual meeting. Berkshire wasn’t happy about the USG board’s decision to stiff-arm a potential bid from Germany’s Knauf. Last week, USG’s board apparently got the message, and agreed to talks with Knauf.
Many have expressed surprise about Warren Buffett’s willingness to openly oppose the board of a company in which he’s invested. But despite his carefully cultivated public image as the genial “Sage of Omaha,” nobody becomes a billionaire without an iron fist somewhere inside that velvet glove. These 2010 comments from Buffett’s biographer, Alice Schroeder, probably ring true with USG’s board right about now:
“When he sees something he doesn’t like in a company whose shares he owns, the famously passive investor can swing into action to protect his investment—jawboning behind the scenes, scolding, cutting opportunistic deals, even hiring and firing CEOs. For some of those on the receiving end of his activism, it can feel a bit like being attacked by Santa Claus.”
Buffett’s actions are a reminder that at a time when longstanding passive investors are more frequently collaborating with activists to “shake things up” at the companies in which they invest, boards & management can take nothing for granted when it comes to investor support. As USG found out, even Santa Claus sometimes puts coal in your stocking.
– John Jenkins