Hire, Review and Fire: The CEO Lifecycle

Better Boards hosted a webinar on the topic “Hire, Review & Fire: The CEO Lifecycle” in September 2023. I was lucky enough to facilitate a panel discussion with Craig Badings, Anthony Mutton, Tom Brett and Peter Crow, and gained so much from the session that I thought I’d share my reflections.

Hire

I’ve been lucky enough, as a member of a board to be involved in several CEO appointment processes. It always feels like spring when a decision is made – a sense of renewal and vibrancy, a sense of next adventures and new opportunities.

How can we set things up for success?

Panel Tips for the Board:

• Before commencing the recruitment process, allocate sufficient time for the board to discuss the requirements of the role, the context in which the organisation is operating (eg growth phase, culture building phase, cutting cloth phase) and therefore what style of leader is best for the organisation (eg people focused, governance focused, strategic focus).
• Consider independent legal and/or recruitment advice to guide the selection and appointment process.
• Ensure that all board members understand the process and what contemporary, good practice involves.
• Interview questions should elicit information about the CEO’s communication style and cultural values. Ensure that candidates give concrete examples of how they communicate and how they have influenced culture. Cultural fit is critical to the CEO’s success in the role.
• Ensure that the employment contract has appropriate terms and conditions that align to board expectations, especially in relation to separation clauses.
• Ensure expectations are set with the CEO, that there is clarity of responsibility between the board and CEO, and that the CEO understands their role in operating the business and implementing the strategy.

Review

Panel Tips for the Board:

• As we’ve already said, setting expectations about what to expect in any review process is important; this goes for the CEO and the board.
• Having an agreed process, timeframe (eg 100 days from commencement or quarterly) and using clear language is important (eg what does a ‘rectification or continuous improvement plan’ mean in practice?).
• Measure what’s important. Setting specific financial targets or project milestones will be important, but so are targets around staff turnover and client satisfaction.
• The chair usually has more regular contact with the CEO; it’s a relationship that ideally is built on trust and validation. The chair acts as a link between the board and CEO; a messenger and potentially a mediator, especially if the board has members with different views. The board should use this relationship to provide contemporaneous feedback.
• Triangulate feedback – seek feedback about performance from internal and external sources. It is common for board members to build into their calendar opportunities to directly interact with staff and stakeholders as a way to gain information about the CEO’s performance.
• A CEO may perform some aspects of their role better in different situations. Align this information to board expectations and be future focused – will the current performance and expectations set the organisation up for success?

Fire

In most instances, separation of a CEO from an organisation is a positive experience; a mutually agreed step, often based on the CEO seeking to expand horizons after a period of growth or consolidation. The CEO goes with the board’s well wishes.

It might be time consuming for a board to recruit a replacement, but they see this as an opportunity to take stock, reflect on the skills needed for the next phase of the organisation.

Although a rarer event, a board’s decision to terminate the employment of a CEO is more difficult for all concerned. It’s something to be avoided, as it can be costly and emotional as well as resource intensive to go down this path.

Regardless of the nature of a separation, boards need to consider and apply good practice.

Panel Tips for the Board:

• Set appropriate expectations with the CEO regarding both results and behaviour. Manage these expectations consistently and transparently.
• If expectations are not being met, have hard conversations early - don’t treat the CEO as a mind reader. There is no requirement for ‘first and final warning’ processes.
• If the board is considering termination, allocate sufficient ‘in camera’ time for the board to fully understand and agree on the steps to be taken, the risks and impact of the decision to terminate.
• Seek legal, communications and other advice to support the board through the process.
• Have a ‘defensible reason’ for terminating a CEO that aligns to the contract entitlement.
• Be clear about the type of separation - is it a redundancy or based on performance?
• If the decision is not communicated well, it leaves the board open to allegations, such as discrimination or breach of contract.
• Most examples end up being negotiated as an agreed exit with a Deed of Release to maintain confidentiality of the conditions of separation rather than a termination.
• Have communications prepared for staff and stakeholders about the reason for the CEO leaving. The messaging should be authentic, transparent and honest, taking into account legal implications.

Appointing, reviewing and separating from a CEO is one of the core functions of a board.

The board is, in effect, their line manager; providing direction and support to deliver the strategic and operational objectives of the organisation. As board members, we come to the table as individuals, but we make collective decisions in the best interests of the organisation. When thinking about the CEO Lifecycle, one of the biggest challenges we have is taking the time understand differing views and reach an agreed position before taking action.

These tips should hopefully smooth the way to making this a positive experience for all.

This article was originally published in the Better Boards Conference Magazine 2024

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Further Resources

The Board and the CEO Relationship

The Touchy Subject of CEO Dismissal

Hire, Review & Fire: Understanding the CEO Lifecycle