Why CEOs Get Fired 
By Mark Murphy, CEO of Leadership IQ

Leadership IQ (www.leadershipiq.com) has spent the last few years studying why CEOs get fired. We long suspected that the conventional wisdom (it’s the numbers, stupid) just wasn’t true. After interviewing 1,200 Directors who fired their CEO, we discovered that the reason behind most CEO dismissals had less to do with the price of shares and more to do with the CEO-Board relationship. When the Board loses confidence in, or gets frustrated with, their CEO, bad things tend to happen. After all, Directors aren’t robots, they’re people; with all the same hopes and fears as everyone else.

So how can CEOs and Boards maintain a healthy relationship? And what do CEOs need to know to keep their Boards’ confidence? The following are three important lessons.

Dig for bad news.
No news is not good news. There isn’t a company today that doesn’t have tough questions to address. And this includes our most admired companies, like Microsoft (do we really have enough investment opportunities on which to spend our cash?), GE (can we become innovative and service-oriented enough to fend off smaller competitors?), Wal-Mart (how much anti-Wal-Mart sentiment can we really absorb?), and the list goes on. But we see case after case where Boards and their CEOs spend their time together sharing the good news, and avoiding the bad news. And when bad news does get shared, it often gets watered-down.

When we coach CEOs at our leadership seminars, we teach them three rules about bad news. First, whatever deep-seated fears you have about the company, the Board is likely to share. If you don’t raise the issues before they do, you will look passive and reactive, and that will only undermine their confidence in you. Second, asking the tough questions doesn’t cause problems; it simply identifies the problems that were already there. Why don’t we get enough mammograms and colonoscopies? While the tests aren’t pleasant, that’s not the major gating factor. We avoid the test because we’re afraid of the answer. Third, if the Board is getting bad news about the company before you do, you’ve got real problems. Either your own people aren’t telling you the unvarnished truth, or you’re not asking the right questions.

Give your audience what they want.
Few things are more frustrating than asking a direct question and not getting a direct answer. Some Directors are concerned about hard data, like financials. Others are concerned about people issues. Some want to know about nitty-gritty process details, while still others want long-range visions and strategies. As we mentioned before, Directors are people and they all have their own biases, predispositions and ways of approaching problems.

There isn’t one style or approach that’s better than another. In fact, many Boards benefit from having stylistic diversity. But when a Director asks a question from their particular vantage point, they had better get a straight answer. Because when they feel like their perspective is being invalidated or ignored, like most people, they react with anger and suspicion.

When we train CEOs, we’ll often advise them to jot down every question their Board asks. CEOs should seek to understand each Director’s unique perspective. Are they focused on data, process, people or vision? Once they understand their Directors’ perspectives, they can give them the information they’re seeking, and deliver it in a way that demonstrates respect and understanding. If the Board wants process, give them process. If they want people issues, give them people issues. If they want data or vision, give it to them. Because before a CEO can start changing the Directors’ focus, and educating them on the kinds of issues that should occupy their attention, he first has to give them what they want. And any CEO that ignores that lesson, does so at their own risk.

Make your conversations meaningful.
When William Perez was hired as CEO of Nike, Chairman Phil Knight instituted a regular Monday-morning meeting between the two. Designed as a forum for the outsider Perez to bounce ideas off the legendary founder, by most accounts they were pretty mundane. We’ll probably never know who’s to blame for that. But what’s clear is that these meetings were a wasted opportunity. When Perez was fired, it became clear that he really hadn’t absorbed Nike’s unique culture. And it also became clear that Knight hadn’t been much of a guide.

We typically coach CEOs that following a Board meeting (or meeting with individual Directors) they should ask themselves “was this meeting worthwhile?” If not, they should further ask “why not?” and “what else could I have done to make it worthwhile?” If meetings between CEOs and Boards devolve into mundane status updates, or empty platitudes about our success, there’s a problem.

Vacuous conversations represent a tremendous lost opportunity. In addition to their role as shareholder advocates, Boards also represent a sounding board for the CEO. The best Boards serve as challenging debating partners that help their CEOs clarify and develop their thinking. William Wrigley once said “In business, when two people always agree, one of them is irrelevant.” If Boards and CEOs are just going to smile at each other and discuss the weather, one of the parties probably isn’t necessary.

Relationships in business aren’t all that different from relationships anywhere else. They’re tricky, require attention and when they sour, everyone suffers. The biggest lesson from our study of CEO terminations is that all the financial results in the world won’t help if the Board-CEO relationship deteriorates. But if the above lessons are followed, the CEO-Board relationship will flourish and the shareholders will benefit. Mark Murphy is CEO of Leadership IQ, a management training firm. He’s appeared in Fortune, Business Week, Forbes, ABC’s 20/20 and CBS News. You can see him live at his public seminars, including What Great Managers Do Differently. Learn more at www.leadershipiq.com



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This issue of Link&Learn was published in July 2007, by Linkage, Inc. (http://www.linkageinc.com). Please direct copyright and additional questions and comments to editor@linkageinc.com