Summing Up
The dilemma posed by the HP-inspired vignette of a CEO allegedly failing to adhere to company values divided respondents to the September column. Two schools of thought evolved.
One was that the CEO should be fired for cause with only secondary concern about public perception. As Ratnaja Gogula put it, "While protecting the short term interests of shareholders and avoiding a depression of stock prices may be a tempting recourse for a Board member to take, long-term shareholder interest is what the Board needs to take care of." David Physick was more succinct: "In the specific case of Acme, sack the guy… If the contract is watertight, be prepared to fight." In chastising those taking a more tentative position, Phil Clark asked, "Is leadership (presumably referring to that of both the CEO and the board) defined by the dollar or by character?" Hal King said: "When culture and strategy collide, culture always wins. End of story."
A second group supported some kind of discipline without dismissal, as well as a more discrete approach to the process. "You don't cut off your nose to spite your face," said John de Vhendt. Most, however, attached conditions to this course of action, typically involving some kind of financial penalty. For example, Walter Blass suggested "a negotiated skipping of his bonus, or stock options…" Deepa Ramamoorthy suggested that the board "also significantly reduce or revoke the severance package of the CEO." To the extent possible, these actions would presumably be carried out quietly.
While maintaining that the CEO should go, others recommended a more quiet approach, neither imposing a firing for cause nor publishing the reasons, paying off the CEO, and sending him on his way. In John Caddell's words, "The CEO made mistakes. The board did as well-the hired the wrong guy… Both need to take their medicine… So, the answer is: pay the man now. Move on." In Guishan Longani's words, " … avoid the public and court drama that would hurt the company and its shareholders."
Others raised questions that would have to be answered before deciding what to do. They included: How good has the CEO's performance been? (Noaman AlSaleh) How clear is the organization's contract with the CEO? (S. Reid) How highly is he or she regarded in the organization? (Lance Lawler)
What comes across quite clearly is that there is no "best practice" manual of instruction for boards when it comes to dealing with CEO transgressions. That's perhaps regrettable. Devin Patel summed up the complexity of the issue by writing, "After reading many of the opinions, it's clear to me that the notion of 'board transparency' is really quite a balancing act." What are the mitigating factors influencing a board's action? With what degree of transparency are the organization, its employees, and its shareholders best served in the short- and long-term? What do you think?
Original Article
The case study for this month is inspired by the Hewlett-Packard board, which deserves some kind of award for continuing to supply business schools with years worth of materials on corporate governance.
One can only speculate on what Mark Hurd did to warrant being asked to resign as CEO of HP, and on the board's discussion leading up to the decision. But we know that the board let Hurd go without cause, meaning that he qualifies for about $40 million in severance pay. (We also know that his contract failed to specify what "cause" might mean, making it very difficult for the board to invoke the provision anyway.) The board announced that its reasons for the dismissal were that Hurd failed to file accurate expense reports and that he was accused of sexual harassment, the latter charge even the board itself decided was groundless. The value of the company immediately fell more than $13 billion.
Now assume that you're one of nine independent directors of the Acme Corporation. It has come to your attention that the CEO has appropriated resources for his personal use and acted in ways that violate the stated values of the organization, values that he has espoused during his five-year tenure. According to the firm's contract with him, these are "cause" for dismissal if the board chooses to invoke them. The two executives making the information available to the board are the only ones who know anything about the CEO's violations.
During the board's discussion of how to respond, those supporting his firing for cause remind the others that such an action could be easily defended by the evidence. They say that they also support firing for cause because they object in principle to paying him $25 million for options that would vest automatically if he were not fired for cause. They note that any disclosures associated with the action represent the kind of transparency to which shareholders are entitled in any event.
A second group supports his firing, but not for cause. They also object to paying him $25 million, but note that it will be accompanied by a "quitclaim" letter settling the case with an agreement that the CEO will make no further statement about the matter. This group argues that if the CEO is fired for cause, it will almost certainly result in a lawsuit in which the details of the CEO's behavior and the board's deliberation will be publicized in the business press for weeks, further depressing the price of the stock. They remind their colleagues that the board's primary responsibility is to shareholders and the value of their stock, and that firing for cause will penalize them more than the alternative.
One board member argues that the CEO should be warned, given a final chance, and allowed to keep his job.
As a director, which course of action would you support? Why? Does your action reflect your views about board transparency? How transparent should boards be? What do you think?
- John Caddell
To answer the simple question first: the CEO needs to go. His credibility with the board is shot (as well as with some of his executive reports). He can't repair the damage and be an effective CEO anymore.As to how to terminate him, that's a much more complex question. Employment contracts exist for a reason. In order to take a job like a CEO job (or corporate officer job of any type), people make significant sacrifices: relocation, leaving another attractive position, stock options at the former company, etc., etc.).
Once he has signed on, the CEO will generally want to stay for the long haul. Leaving a job like this involuntarily creates lots of problems for an executive. Frankly speaking, jobs like this are hard to come by. 12-18 months of downtime is not uncommon in my experience. Restarting is difficult, as is regaining the former level (which often never happens).
Also, executive terminations happen for all sorts of reasons. Companies merging is the most prominent example that by default relieves some executives of their jobs.
For all the above reasons, significant severance compensation is built into these contracts.
Therefore, as you write, if you want to terminate this CEO for cause, expect a fight. It would be his obligation to himself and his family to do so.
And once a fight starts, the board will discover that what appeared to be a clear-cut case will, under discovery, depositions, cross-examination, etc., become murkier and murkier. The biases of the executives who brought the information forward will be probed. The board will be deposed, exposing the differences of opinion among them.
Legal and reputation costs will mount. The exec team and board will be distracted for weeks, months, or longer. And, at the end of the day, it's very likely they'll pay the executive a large percentage of what he's owed anyway.
So, the answer is: pay the man now. Move on.
Finally, regarding transparency. The board should say that they reached a mutual decision with the CEO to part ways. I would not publish the reasons--remember, the evidence will not be clear-cut, and will be interpreted by everyone differently.
The CEO made mistakes. The board did as well--they hired the wrong guy, and approved a severance package that looks outrageous to outsiders. Both need to take their medicine.
- CJ Cullinane
The HP situation is interesting and does indeed create some good discussions for us students of business. First, I believe any corporate sales manager, chief officer (CEO, CFO, etc.), politian (travel expenses are now in the news), or employee that deals with the customers or public can have a 'perfect' expense report. It depends on how close the scrutiny and also the interpretation of the situations involved.Second, There seems to be a lot of incompetence on the HP board. They do not seem to be in touch with reality in many areas. Board members felt they had their 'toes' stepped on and saw a chance to get Mr. Hurd out. It seems to me that their egos were the first concern, the company second.
Third, I believe they knew their case against Hurd was weak at best and could not sustain a court fight over just cause. The price paid, forty million dollars, was a small one to protect their egos and get their power back.
What amazes me is why the shareholders do not bounce these incompetents and replace them with true leaders.
- Deepa Ramamoorthy
- Senior Technical Lead, Tech Mahindra
Had the magnitude on the misappropriation of funds been of significant worth - it would have no doubt forced the board of directors for Acme Corporation unamiously decide to be transparent to their shareholders, and also take stringent actions on the CEO.This does not appear to be the case here. In this scenario, the catalyst forcing the company to evaluate the situation (which like the Hurd case ) appears to be "acted in ways that violate the stated values"
The first group's action in firing the CEO for 'cause' - This would amount to washing Acme Corporation's dirty linen in public, and denouncing the man who was leading the company. The transparency of the situation here would lead to creating panic among shareholders and employees, and a lack of clarity on the company's future and leadership, proving to be more of a case of living up to the company's ideals, without a tinge of realism thereby bringing more harm than benefit to all stakeholders.
The second group's action in firing the CEO without "cause" and coughing up the $25 million with a "quitclaim" - While it definitely sounds easy to get rid of the CEO with a payment, its going to come at a heavy price to the company - the high severance costs which likely could be multiple years of the CEO's salary, and the additional expenses of hiring a new CEO which in addition to the costs associated with the hiring would also have components such as additional payouts to be made when the new hire leaves his/her previous workplace. Needless to state, an abrupt termination of a long serving CEO sounds questionable and would definitely waggle a few tongues around as well.
The simplest solution at this time would be to issue a strict warning to the CEO and allow him to keep his job, and also significantly reduce or revoke the severance pacakge of the CEO. This would ensure that the company interests remain guarded and is safe from future recurrances of such incidents, at the same time sounds justifiable to its shareholders should things turn sour in the future requiring transparency.
Any individual can be caught in an unfavourable situation questioning his / her values, the society however is often is more harsh when the indivdual is an eminent personality than a common man.
- Tom Dolembo
- NewNorth Institure
The board will offer up a choice. The two executives who whistle blew indicate a control failure in the company exists if the CEO can siphon funds. This is probably at root a reason to reorganize. The CEO can stay, the execs also stay. The choice is this: the CEO can stay and relinquish the $25MM vested option, or the CEO can resign and the settlement will be a nice net figure but substantially less than the $25MM. The company itself is in trouble in any case, stock depressed. Boards have to re-establish their audit and control function, this one cited has not. It should be assumed by any Board that if the opportunity arises for a CEO to steal (it is in the DNA), he or she will. Forget the oaths of office and the righteous morality. Boards are obligated to watch the coop. If the fox runs off with the chickens, the fox is simply confirming it is a fox. This CEO will quit and find better hunting elsewhere. The new one bears watching.
- Alex Todd
- Founder, Trust Enablement Inc.
If the board loses confidence in its CEO it should have cart blanch to terminate him/her at their discretion. That's one of their core responsibilities. In my opinion, a mismatch in values, regardless of immediate impact, is sufficient cause. No explanation required.The issue of how to handle contractual obligations is an entirely separate consideration and should not be guided by the myth that board transparency represents "good" corporate governance. Good corporate governance should not be dictated by doctrine (analogous to religion), but by business strategy and policy. In some cases (not instances, but corporate environments; as consistency is important), a high level of board transparency is consistent with policy. In other cases, it is not.
So I would begin by asking what do the the firm's corporate governance values, principles, and policies state about board transparency. The answer to this question should guide the board's actions. Where this is unclear, corporate strategy, rather than tactical considerations should inform decision-making. In other words, the amount of payout to the CEO is not a valid consideration. However, the impact on the company's ability to deliver expected value to strategic stakeholders (likely, but not necessarily, including shareholders) should be the primary strategic consideration (but only in the absence of policy).
Finally, this brings us to the natural question, when should boards be transparent? My research suggests that board transparency may be linked with shareholder rights. Increasing shareholder rights, inevitably leads to increased information (disclosure) requirements; in other words transparency. However, recent research has found increased shareholder rights (although historically associated with higher valuations) to be associated with significant share price under-performance. So, if share price is a strategic priority for the company, less transparency may be a more appropriate approach. In fact, there are indications that a "sovereign board style" (in other words more board independence, free of excess influence by either management or shareholders) is associated with higher profitability historically, and superior investor returns over the past four years . In other words, there is evidence (both from academic research and empirical observation) that inve
stors prefer to trust their boards, rather than monitor or control them.
However, if shareholders are not considered to be a strategic stakeholder (or if we are dealing with a case study from the 1990s), transparency may well be the preferred approach, which would suggest firing the CEO for cause.
- Philippe Gouamba
- Vice President of Human Resources, Skyline Windows, LLC
This is an interesting dilemma especially in today's very volatile economy.There is only one board member that is using commons sense and making a brave decision that will benefit the organization, the shareholders, the sitting CEO and will ensure that continuity in leadership is not disrupted or abrogated.
My vote is for a stern "public" rebuke of the CEO in front of his peers, his fellow board members and the highest executives of the firm in which our errant CEO would be allowed to keep his job. This public warning will serve to warn other executives that they too need to walk the straight and narrow path of moral correctness. Board transparency is a bit like CIA transparency. Boards have to deliberate on issues that involve the very survival of their companies; the CIA deliberates on urgent defense strategy issues. Boards and organizations like the CIA need to be able to resolve matters internally when necessary. Most of the mistakes that are made in the business world can be corrected and individuals can be re-directed and re-habilitated. In the case of this CEO, firing him will break continuity in leadership and the outside world which will not get all the details on which the board has based its actions, will just assume the very worse; the company's stock will plummet and more people will be hurt in many different ways.
Boards should be very very transparent within the organization and less transparent to the outside world, much in the way that a husband and wife should be very transparent with one another yet what goes on in the confines of the bedroom need not be public.
- Neil Jackson
- Board Risk Consultant, XCEO, Inc.
When the value of the company immediately fell more than $13 billion the board knew they had failed to mitigate risk surrounding the issue presented by the CEO. They had failed as well to serve the shareholder and perform in a proper and enlightened manner. Rather they selected [and should be held to account] a course which was futile and I believe very much knowing so and thereby made transparent their ineptness in tome of crises when boards should act more maturely. Until the board is mature and encouraged to be enlightened in their diversity of thought, skills and ability to openly debate and then are to be held truly accountable for all actions, they will be opaque not transparent and that is regrettable. Because it is the shareholder who lives with the results of risk.- Ratnaja Gogula
- Product Manager, Kenexa
As a Board director I would support the action of firing the CEO with cause and zero severance pay. The whole purpose of having a Board of independent Directors is, I believe, to check probable scam acts by a person, bestowed with the freedom to acquire and use funds of an organization in the best interests of the shareholders. While protecting the short term interests of shareholders and avoiding a depression of stock prices may be a tempting recourse for a Board member to take, long term shareholder interests is what the Board needs to take care of. Non-filing of accurate expense reports and the miss-appropriation of resources for personal use are serious crimes of a CEO that the Board cannot overlook for the sake of sustaining price of the stock in the short run.A quick Google search on Roles and Responsibilities of a Board list the following:
To provide continuity for the organization;
to select and appoint a chief executive;
to govern the organization by broad policies and objectives;
to acquire sufficient resources for the organization's operations; and
to account to the public for the products and services of the organization and expenditures of its funds.
A Board that chooses to be non-transparent on any one or more of these roles and responsibilities and chooses a remedial action of firing a CEO without cause, despite him being appointed by it and despite knowing that the CEO has violated fiscal accountability is according to me an abettor. To further invoke an ill-framed provision in the CEOs contract and qualify him for about $40 million in severance pay is like rewarding the CEO for his mis-deeds.
- Marina Muscan
- AC&CA Consulting Services SRL
In my opinion internal transparency means order because all the people involved into the organization's life and development know how it is evolving and therefore they know how to react to change. The board of an organizations gives inputs into the organization by making decisions if the decision making process is not transparent some members within the organization would not know if these decisions are appropriate for the development of the organization and they might not support these decisions.On the other hand there is the transparency towards the general environment in which the organization acts. This is a mediated transparency because it can be achieved by using communication media and it should be regulated by a disclosure policy.
- David Physick
- Consultant
Let's consider this at a broad level first of all. The majority of organisations now have their visions, values and beahvioural expectations defined. Laced through all of these is the expectation that everyone will be open, honest and act with integrity. Contracts should be specific about what is 'cause' and what isn't. For some unfathomable reason the lawyers draft ambiguous contracts that allow too much room for manoeuvre. (Oddly, the lawyers draft T&CS for customers that give them no leeway whatsoever.)Performance management is conducted shambolically. What is required is a preparedness at the top-most level in organisations for them to act as they say. That they do not and ride a coach and horses through organisational values and the like creates a massive cognitive dissonance amongst the workforce. As a result, the organisation's climate is affected and it doesn't perform as well as it should. So this is absolute cause to get rid of the fillandering Executive and not pay him a dime (or a penny here in the UK). In the case of the previous respondent about egos, this too shouldn't be tolerated behaviourally and the Chairman needs to be brave enough to clamp down on this, too.
In the specific case of ACME, sack the guy. Explain precisely why. If the contract is wooley, pay him, as litigation will be far more expensive. If the contract is watertight, be prepared to fight. And the next guy that is employed, make sure everything is black and white to remove future ambiguity. People may dismiss this case at HP as slightly frivolous. I think it is crucial for ongoing economic prosperity and social cohesion to ensure that those at the top of organisations can be properly and fully held to account for the misdemeanours. The guy on the shop-floor would be sacked without any qualm. In an organisation saying it is open and transparent, this must apply to everyone.
- Dr. Krishna Ram
- Consultant, Krish Management Consultancy services
Well, a misappropriation is a misappropriation! But when it comes to the CEO, if he has approved the expenses, we need to trust the person and move on. The person like Mr. Hurd of HP had turned around the company and moved it to USD 119 bn and is now cash rich. His sexual harassment case should have been treated separately. In my opinion, all sexual harassment cases in corporates can never be one way - both have a hand in it and an axe to grind. So, the CEO should be asked to go on a small leave and come back clearing the issue with the employee. Of course, the employee should be terminated and the CEO should be given a stern warning by the Board. The appointment letter should have clauses stating that these are taboo and if caught or complaints are received what actions will be taken.But asking Mr. Hurd to leave is an immature act by the Board of HP.
- Hal King
- CEO, King Brown Partners, Inc.
Mark Hurd was fired because he had no respect for HP's culture. Just as with Fiorina before him, he disregarded or ran roughshod over the values, processes, relationships and traditions of the enterprise and it rejected him. The "scandal" was an excuse to get rid of a difficult, arbitrary and inflexible leader. When culture and strategy collide, culture always wins. End of story, except for the Oracle litigation, which HP will pursue to the ends of the earth and beyond, to prevent a collaboration between Hurd and Ellison.- Mike H. Johnson IV
- Chief Operating Officer, EXCOM
In my humble opinion, Board Directors & Members are overcompensated, and hence the incentive to create transparency is fairly difficult. Think of it as a conflict of interest in a way. A lack of accountability is surly to ensue.One could reasonably argue, that is it is quite difficult to get Board Directors and Members to understand something when their salary/compensation depends upon them NOT understanding it.
Thus, a Board's responsibility to ensuring shareholder value through the guiding of the long-term strategic direction of a Company can be observed as being generously overrated.
I am reminded of an old adage...
Without Confidence you have no Trust.
Without Trust you have no Transparency.
Without Transparency you have no Accountability.
A company's Board MUST understand the dynamics of the individual components to the overall equation.
- Ralph Ward
- Publisher, Boardroom INSIDER
It's telling that the author extrapolates the H-P situation to a fictional "Acme Corporation," rather than simply asking what should have been done at H-P. Certainly it sounds like more of an ironclad case if the CEO is accused of "misappropriation" and "violating the stated values" of the organization. However, we cannot escape the fact that that, by the manner in which the board shoved Mr. Hurd out, they cost the company $13 billion in market cap.Thus, if we read "Acme" for "H-P," it would seem that the lone director who wants to scold the CEO but keep him on suggests the wisest course. Yet in every boardroom there is a backstory and a history. In 2006, Mark Hurd left H-P chair Patty Dunn twisting in the wind after the "board spying" scandal struck, and then quietly snuck into the board chair on her ouster. It could be that the expense account/hanky panky eruption was just the final act which convinced directors that Hurd could not be trusted. His immediate defection to Oracle would seem to reinforce this perception.
- Anonymous
As the author Jim Heskett alludes an inspiration is set as a very good to excellent precedent on Corporate Governance matters on the Hewlett-Packard board decision to ask Mark Hurd the CEO to resign for a good reason based on his conduct with him getting his severance pay. What i assume could be one of the learning fundamentals about the matter that can be extracted is letting the CEO go without a cause. I regard this a plausible rational that did measure risk and controlled it leading to a reduced negative image and publicity about the company which could have had depressed its earnings in business and on the stock market.Assuming i am one of the nine directors of Acme Corporation and as i am required to make a decision about dismissal of CEO on reasons for misappropriation of resources for personal use, i would decide on policies and procedures taking into account the interest of both the CEO, company 's image and what other stakeholders general outlook, feeling and perception of the situation without prejudice and disadvantaging anyone . What is really ideal is to make sound credible judgment that is free from all bias and falsehoods which might again further the company 's expenditure by repaying the CEO damages of reputation.
However, if there is a genuine case and valid evidence as result of forensic audit of repeated offense in conduct of misappropriation of resources it is likely that if the corporate policy establishes the procedures to dismissal on such grounds i will ascend to a decision to have him dismissed with his severance pay as he is entitled to.
I get feeling that other board members seem to be unwilling to have him paid, i suppose as a result probably that he siphoned already enough resources which justifies non payment of severance pay. However, the matter having arrived to the board means any other internal processes and remedies must have been utilized e.g. audits, counseling and investigations but still the conduct repeated which means dismissal will be on good grounds. So the extent to which the board should be accountable and transparent has to do with type of actions to be utilized in terms of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled.
Transparency and accountability are necessary as they induce internal and external control of company assets and investors. Reducing risk is always of fundamental importance when making decisions that turn to impact on the role of stakeholders. The nature of information that stems from a company 's operations is determined by how it handles its own internal affairs as determined by the board's knowledge about issues, relevancy of action towards the solution and how it impacts future operation of the company. So to arrive at a prudent judgment of future state of affairs requires knowledge content of factual issues that rest on correct premises and being well conversant to the control mechanisms and language industry such that the level of consistency of the board actions on accountability and transparency will naturally culminate to be that of a inspiring precedent as for example the HP and how problems of this nature are handled which require skillful decision making that compromise diligent business attributable profitable ways and investor relations.
- Ravindra Edirisooriya
- Senior Accounting and Finance Major, Missouri Southern State University
The answer to Professor Heskett's question is dependent on how the responsibilities of the Board of Directors are interpreted and who appoints the Board of Directors. Of course the Board is primarily responsible for looking after the interests of the shareholders. However, all shareholders are not created equal since there are small (individual) investors, large (individual) investors and institutional investors. I had the chance to cast the proxy votes for the directors up for election or reelection and board resolutions slated for voting in the annual meeting as a "small shareholder" through my involvement as a student analyst (in the two semester portfolio management course sequence) of finance and health care sectors for the school endowment fund last year. I read all the directors' bios, years of service and their committee activities for the company, and other company board services. However, it was hard to decide whom to vote with the information given in the notice of annual meeting and proxy statement. Shall I vote for (election or) continuity of a director or shall I vote down a director depending on how responsible the particular director is for a company's financial position, does the person has some unique knowledge or skills to offer the company, how old or young "ideas" he or she has, or how the person looks in the picture? There is not enough information for proper assessment of prospective directors. Besides, can the past patterns of activity relied upon to show future patterns of activity? Statisticians rely upon past data to predict the future state(s) but there is always a margin of error. Companies like Johnson and Johnson preselect the directors running for election. Hence, the company has taken responsibility to forward the "right" group of prospective directors for voting. Now the investors are suppose to vote for the directors of their "choice" out of the preselected group. My point is that small investors are very likely to vote at random and cancel their votes. Hence, do the elected directors have a real responsibility to represent the small investors?Only two executives knew of the CEO's violations and does that mean the CEO had a separate channel for submitting expense reports or is it that the violations were detected by internal or external auditors and reported to the executives? What motivates the executives to report the violations? Mr. Mark Hurd is offered a new position in Oracle, which seems to show that his discretions were either not serious enough to be sidelined or Oracle may be trying to "pry" some competitive advantage off HP.
Given the large market value of HP, paying $40 or $25 million to a parting CEO is small potatoes but it would sink (it sank $13 billion!) the stock price because of the uncertainty in the future direction and liabilities of HP. On the other hand, since Mr. Mark Hurd is seen to have what it takes to take HP to future profitability, why not he be assessed a reasonable penalty to make him pay for his violations, be warned, given a final chance and allowed to keep his job?
- Gulshan Longani
- Sr. Program Manager, MathWorks
I think the decision to let go the CEO is the right one. The accusations and the actual misreporting of expenses are serious charges at any level, but for a CEO, they have a highly negative impact with loss of credibility with the board and the employees.It's sad but true that boards seem to bestow extremely generous severance packages for CEOs and give it to them regardless of their performance or cause for termination. Unethical, maybe, but it's all legal.
Since the I think firing CEO without cause - if they are not clearly stated - is the right thing to do to avoid the public and court drama that would hurt the company and its shareholders. But for the next CEO, the board should make sure the 'cause(s)' for terminations are as clearly stated as legally possible.
- Anonymous
Boards must be completely transparent, at all times. They have a responsibility not only to the shareholder, but to themselves and their charges. Honesty must come before anything else. Before a Board anoints it's "king", a due diligence should be performed to ensure that every member or director has a complete understanding of the culture, vision, and definition of every term that is used in regard to employment contracts, of the particular business entity. There should never be any wiggle room whatsoever given to any party, at any time.As far as the question at hand, the Acme CEO must meet his accusers and offer a resignation, if he or she is found to be in conflict with established procedure. CEO's must be people of character and be willing to be the first to "step up" and accept the consequences for their actions, whether they be stellar or otherwise.
If this is not the case, he or she must be fired for cause. Then the Board must step up and do the same as above.
This may seem to be an oversimplified answer to a very important question, but often times, that is all that is needed.
- Kapil Kumar Sopory
- Company Secretary, SMEC(India) Private Limited
In my first organisation, the seniormost boss sought answer to a question - you are entrusted with the task of investigating misdeeds (finance related and/or others) and your final finding is that the subject appears to be 99% honest; what should the decision-making authority decide on the action to be taken against this person? Most of us responded that the person be warned/punished mildly. This was not accepted and the boss said " This person must be shown the door as less than 100% integrity is unacceptable.That was way back in the seventies. Much moral decline has taken place since then and we come across many cases like the two quoted by Jim. The moot question is whether ignoring the basic principles of sound ethics and morality can be accepted and detected violations not be awarded exemplary punishments. In my view, letting the concerned go almost scot-free is an act of of imprudence.
Generally, the Board members sign a code of conduct the purpose of which is to articulate the high standards of honesty, integrity,ethical and law abiding behaviour expected of them. CEO's are no exception...rather, they are and must be under closest watch by their fellow directors and top management/executives as well.
It is hard to believe Hurd failed to file accurate expense reports and get going with these without detection by any one. There is every possibility that, even though observed, cover was provided and no voices raised considering the CEO's presumed clout. More often than not, this is possible with the help of a nexus within/outside the Board. This needs to be found out and exposed.
In the case of ACME,it was the moral duty of the two executives to make the information available to directors no sooner it was known. If a proper whistle-blowing policy was not in place, this could have been done anonymously. And, based on the varacity of the information, the Board should have dismissed the CEO without paying any compensation.
If hire and fire happens at lower levels, it is more relevant to highest levels so as to send a transparent message across the organisation that misdemeanours are taken extremely seriously.
- Noaman AlSaleh
- Media & CSR Manager, Emirates National Oil Company
HP board had acted to the interest of the corporation by letting go of their CEO. Their interest is built through certain views and speculations. Whereas some companies board my think paying $40 million in severance to CEO who is supposed to be fired rather than letting go for no cause is the worst thing they will ever do. I will view it from a 4th dimension; not the fall of the shares, not the customer loyalty, not the brand equity, and not even the future of the company which I put forward before letting go of a CEO for a cause or no cause. Mainly, we are no more in are eligible to hold and guide a CEO to follow our memo's.Not all reasons are legitimate, as there are some hidden and some are visible for all to view like the success of the company and the increase of its market share, stock value and stakeholders. In my opinion, HP CEO is a successful and an innovative, the question is before letting him go was there any one who asked "is it a gain or a loss to let him go?"
Hence it was asked or not, how will the company perform if he was let go for a cause? or a simple note to stop and get back on track will be valuable to contaminate the whole matter and sustain a major player of the organization success.
The truth, I will view it as undefined stakeholder; as long as I am gradually on the plus side financial and market share wise, I will contaminate the matter and allow the CEO to perform on his best with a warning of his behavior. On the other hand, if I am not forecasting any gain, I would plan a scenario a crises before I let go of him with a cause and that to allow the least time to be at it and to be out of it ASAP.
- S. Reid PhD
- Writer, http://PropertyInvestingInformation.com
What is missing in most CEO contracts is definations. There is more than one definition to most words. With no definitions to the key words the CEO or any contracted person has a lot of room to make his/her own definition.Take the word "transparent". Every board member and stock holder has their own definition of what transparent means for the CEOs actions. Transparent means different things for different positions.
At the risk of referring to IRS rules, they do have a lot of words defined in each section. A word can mean something different in each section.
I am not inferring that board members, CEOs, other professionals do not understand the words but clarity can make life much simpler in the long run.
- Phil Clark
- Clark & Associates
Twenty postings so far....that is a slow response. Interesting that many do not know how to touch this. It reminds me of the line in the movie a "Few Good Men"..."You can't handle the truth". I find it a sad commentary that when truth and ethics are involved people dance like water on a hot plate. Money shades all ethics. More worry about the the stock price and share holders than what really happened. Is it any wonder people do not trust the business leaders of the country? I find it very sad that our society, and media which fans the minutia of extremes, has created and environment where reality and honesty must suffer. Some of the behaviors of senior executives would not be tolerated at lower levels of the organization, yet exist at the senior level. The company worries about litigation and all the expensive side effects when employees violate company policy and laws. At the executive level, they have contracts with clauses that allows people to behave poorly and get rewarded. I am becoming a tired old cynic but I am weary of boards and executives behaving poorly. Fine examples for the future. Is this leadership? Is leadership defined by the dollar or by character?- Harlyn Sianturi MM
- Manager Risk & Assets, PT Kaltim Prima Coal
Thanks Prof. Hesketts for this core issue of top important humanity on honesty and accountability, even though many top notches professionals and others will think and comment that this is naive, for now.We are hurt to see dishonesty by leaders in business and elsewhere especially of those magnitude impacting millions of lives who lost their jobs and future but the business world today I think is still in search of the solution. To me, the issue is about what a man made of. It is an eternal confrontation between "good and evil", but now I think the evil ones are on the winning side, sad fact of life. The business world today has been made too prone to abuse and too much assistance to abuse as if in a self defeating prophecy.
I surely believe, by keep shedding the light, as you and others do, will help professionals to get out of the dark and winding tunnel and will be able to live their words, honorable good living executives.
- Henry Maigurira
- Executive Secretary, Pachi Development Foundation
The height of transparency must be one in the interest of company bearing in mind that right to corporates as juristic bodies are entitled to privacy then if matters are of one that will produce information that will unfairly, negatively distort corporate public image with stock decline then information must sharing must be done internally for the purposes of administering problem solving and eventual decision making. The level of transparency is also a matter of balancing facts, corporate values, opinions, board decisions, policy requirements and previous ratios from similar circumstances where good practices of resolving matters of silimar nature such as assuming a decision that favours less risk and promotes sound investor relations.It does not benefit the corporate to 'devulge' information to public that is of a magnitude of less importance and of less relevancy interms of corporate overall strategy and plans, finances, leaderships, and vsion than to maintain a notion of privacy sanctifies benefits to be accrued by releasing information to the public where there can be lessons learnt.
Conducting an internal interview is of pragmatic importance where the board should understand issues and answer questions that unfold as a process in applying their codes to given circumstances. This is the best starting point of transparency, problem solving with justice in motion on the corporate board rooms. Facts are abundant that the nature of evidence againist the CEO is admissible, the board might warn him and let him do his job again but there is likelihood that similar actions will unfold again in the near future and board faced with similar task. Depending on what the corporate policy say, the economic climate and urgency of requiring best performing human capital in leadership positions the board will likely decide on merit to have him keep his job or if the evidence is admissble and conduct intolerable then a decision to rescind his tenure and pay him his due is will be credible bearing in mind that the corporate 's right to privacy, information protection (certain information is not always necessary to put to public not because there is something bad which the corporate hides but merely because such information is of private nature between corpoarate and its employees and its good business decision to make it an internal coporate private matter) and this will be of equal importance in the interest of the corporate 's image.
The height of transparency should be determined by facts of the matter, or whether the issue is in the interest of the public or corporate to hear it. It will be grossly unfair to represent payment of damages of dismissal on good reasons being potrayed or publicised as unfair dismissal by employer.
- Kuhan Tharmananthar
- Analyst, Etrading Software
The Acme CEO must be fired with cause. The ensuing public disclosure is a vital aspect of corporate governance. Boards mustn't forget they are caretakers - their first responsibility is to the owners of the company. The shareholders.In these volatile times, one of the great issues is the disconnect between shareholders and the boards and executives who run corporations. How many shareholders understand the accounts presented to them? How transparent are the risks the company currently bears? When these aren't understood, the majority become prey to the emotional whims of the market. This creates a vicious circle because then boards begin to focus on market perception rather than the core of their business. In the end, this will damage the long term health of the company.
- Anonymous
HP Big Mistake! Another management gone mad. Being an African and British there is an aspect of leadersip and authority which is shared by both. Here it is: THERE ARE THINGS WE TALK ABOUT, AND THERE ARE THINGS WE DON'T TALK ABOUT. In HP, Hurds issue should have been the one they don't talk about. Its a position thing, Its a top contributor thing, Its a leading the company thing. HP should have converted the indiscretions into a 'benefits linked bond' and allow Hurd to buy it out with good behavior. If we are all held upside down and given a thorough shake...what Hurd did will look irrelevant. I wish him well and I hope he profits another company.- Ajay Kumar Gupta
- Management Faculty, ITM,Business School, Kharghar, India
Transparency of the boards should create value for organisation. It should protect the interest of the organisation first. Between organisation and individual the prime objective should be to restore trust in the organization. In case of controversy, dispute or any allegations, the interest of the organisation should be protected in all the condition. It is because people operate the organisation, create culture and build reputation and not vice versa. Transparency that reveals secrecy or any sensitive information that might harm to organization should be discouraged. And transparency that improves the reputation of the organization, increases the morale of its employees creates values for stakeholders, vendors and builds trust among customers should always be encouraged. So, transparency alone is not sufficient. Impact of transparency is more important and critical factors than becoming transparent alone per se. Therefore, full transparency is dangerous and I term it as "Blind transparency". On the other hand, Transparency based on value creation potential is always encouraging and provides multiplier positive impact. So, we need " Strategic Transparency" to create value for the organization and people.
Transparency in employment contract fosters trust among employees, Employment contract should be explicit and there should not be any hidden clause or loopholes. This should be known to every employee. The roles and responsibilities should clearly indicate about " Do's and don't" clause. Any violation should be strictly dealt with so that clear message permeates to all employees in hierarchy. Transparency about the assets and liabilities of Board members should strictly be followed and it should be on regular interval. And disclosure should be audited and verified properly. Selection criteria for Board should be fully transparency and it should be based on purely merit and not on other parameters.
In case of discussion leading to decision, proper process should be carried out. Any decision should be based on proper evidence. Decision should not be based on rumors, unsupported evidences etc. However, there are circumstances where rumors, allegations, propaganda against person do more harm to organization than to person itself. In such situations, organization should take steps where organization and individual reputation is intact. So, strategic transparency protects reputation of both.
Decision based on personal opinion, personal differences or on baseless ground should be discouraged. When sacked person found to be free of guilt afterwards then board's decision comes into question and it becomes moral responsibility of each member to resign. Since Board can not regain the lost reputation of the sacked person, they should own the responsibility to pay for their decision. The means of accusation or allegation is more important than then the person itself. The means should be reliable, trustworthy and stand to its words.
I strongly feel that any person proved guilty should not be pardoned nor should be given any severance pay. This reveals that people on boards have soft corner and do not think it serious matter. This also sends strong signals to commit same mistakes again and again. Therefore, crime, corruption and frauds should be severely dealt with without mercy.
- Yedendra G. Chouksey
- Professor, International School of Business & Media
The fall in share prices arises when the causes of the termination of the board members are shrouded in hush-hush mystery. So, in mattress of dismissal of top functionaries of a company complete transparency should be the preferred mode, barring situations where disclosures are in the realm of absolute secrecy.Moreover, a board member is accountable to the shareholders and any misdemeanor which invites his removal from the organisation should be brought to their notice with explanation from the chairman as to how such a person came to be appointed to the position, whether his misconduct was the result of lax procedures and how much of harm his action has caused to the company in tangible and intangible terms including loss of goodwill. Such a transparent dealing will not only ensure a fair treatment to the dismissed person but also put to rest the misgivings among all stakeholders including employees, customers and the public.
In the hypothetical case there is a good reason to dismiss the CEO with cause as he has flouted the organizational ethics for personal gains. In the case of HP CEO the reasons hint at lack of personal integrity (failure to file accurate expense reports) but by paying him huge severance pay the company has conveyed the message that its action lacked conviction. No wonder the stock prices fell.
- Anonymous
It's ironic that HP's board wanted to avoid a lengthy, costly legal battle w/ Hurd and paid him off to leave quitely, but then a few weeks later after he joins Oracle, HP is now suing Hurd. So much for staying out of court.Especially with the 300,000+ employees that HP has, this is a really key stakeholder group. It's important in these types of issues to assess:
* what the effect on employee morale will be if the CEO were to stay, word gets out that his errors were overlooked and he then goes on to lay off more & more employees for the cause of cutting cost and most of those employees did nothing wrong to deserve termination.
* the effect on employee morale if your CEO screws up by unethical behaviour, is allowed to resign and get paid $40 basically for screwing up. Other than his personal pride, there's not much incentive to keep a CEO from screwing up. This communicates clearly to the employee population that a double standard exists and the rank & file employee is treated as a very different type of employee than are executives...both from a pay-for- performance perspective and with regards to how values & ethics are upheld & how discipline is administered when they aren't upheld.
- John de Vhendt, LL.M
- Business Legal Consultant, Self Employed
Just imagine, what if all the British politicians who misappropriated their expenses, to the tune of thousands and thousands of pounds, were all asked to go? They were exposed, they paid back and we all moved on. This is coming on the heels of the banking crises and all 'John Doe PLCs' now want to show that they are tough. Thats rubbish. You don't cut off your nose to spite your face. And to all those who expound strictness in this case, a business is there to create value and make money, period!People are any business' greatest asset, more so the ones that have proven themselves. To let Hurd go on a weak and feeble moral ground is plain stupid. It looks like this was not the real issue. There must have been something else. Businesses are not moral champions and they are not meant to be. Why weren't CEO's and the board of companies who used child labor in India and other Asian companies thrown out? Not to mention numerous and interesting products liability cases, from auto manufacturers to food and drug companies. Some are so diabolical you would scream: Oh my God!
The questions are where do you draw the line? Where is the hurt? Who is hurt? Next time we all go on business trips, buy designer goods, eat good food in restaurants etc etc, please lets think about the world's economic and social imbalance and the moral exploitations that might have gone on, so that we can afford and enjoy the deal. We all aid and abet business immorality.
- Walter Blass
- Retired Director--Strategic Planning, AT&T
I am a bit dismayed at the eagerness to fire the CEO, be it Mark Hurd, or the CEO of Acme. How does that phrase go "Let him who is without sin throw the first stone" ? Are all our regicides who answered Prof. Heskett's excellent query so without sin that they would do this? Has no one sought the company of the other gender who would listen and engage the lonely CEO about the travails of that position? It sounds a lot like the legendary "midlife crisis" of Erickson, Vaillant or C.G. Jung to me, and here we have ( at least at HP) a very valuable CEO who took the company out of a crisis and raised the market cap significantly. As several interlocutors have suggested, can't we cut the man a little slack, given what he's done for the corporation? I quite agree that the "punishment should fit the crime" but a penalty, yes, a financial penalty such as a negotiated skipping of his bonus, or stock options oreven a year's salary would seem to be more "fair" and good for the company, than a demonstration in one of Larry Ellison's pronunciamentos " this is the dumbest thing the HP Board has done since Apple's Board fired Steve Jobs."
The denouement of Hurd going to work for Oracle is just another nail in the coffin of those who would 'slash and burn' their way through the Boardroom. Sadly the HP Board has shown an egregious degree of making misteps one after the other, thinking it was doing 'the right thing." Perhaps what they did should raise the caution that Joseph Fletcher, he of Situational Ethics, raised when he cautioned us to step back, take our time and use his four principles, pragmatism, relativism, positivism and personalism ( e.g. look at the person, not just at the law.) It makes the choice more difficult, but perhaps it might keep us from making things worse, as clearly the HP Board's actions have done.
- Renny Ponvert
- CEO, Management CV, Inc.
The questions surrounding Mark Hurd's dismissal are mostly red herrings. The Board says he falsified expense accounts and, if true, that's a firing offense. As a US Government vendor selling to government agencies, HP has to certify compliance with ethical standards and the Board has no choice but to fire a corporate officer who violates written ethical standards, as Hurd apparently did. The only viable question for debate is "did the HP Board violate its fiduciary duty by not firing the CEO for legal cause?" The decision to not fire him for "cause" tangibly cost HP shareholders tens of millions of dollars which the Board is obligated not to spend if -in fact - the CEO did not really leave for "good reason". It's not a question of fairness. It is a question of fidicuary duties to shareholders.- Paul T. Jackson
- Consultant, Trescott Research
"They remind their colleagues that the board's primary responsibility is to shareholders and the value of their stock, and that firing for cause will penalize them more than the alternative."What astounds me is that a board would allow such contracts to be written in the first place.
Do boards/stake holders know what the contract reads when they hire some CEO who will not be accountable if he/she messes up?
- Jay Somasundaram
- Systems Analyst
I'd like to approach the problem from a different angle: The sharp drop in share price.Should a sharp drop in share price be of concern? Is there a real, underlying change in value?
In theory, the change in share price is caused by the markets realisation of a change in the company's value. What caused this change in underlying value? A corrupt CEO, or the board's handling of a corrupt CEO?
My understanding is that the law is very clear. Boards must announce matters that affect the underlying value of their firm.
- Kumara Uluwatta
- Senior Lecturer in management Accounting, Wayamba University of Sri Lanka
If we dismissed the CEO, the company may be faced the problem of loosing goodwill more and more when spreding out the problem to customers. Though, he is accused, and impossibilty of repairng the dammage what he has done to the company, he would be given a chance to repair himself. Board can ask him to step down from the CEO post untill such time of making the comprehensive decision because we all must understand when working with human assets, decisions should not be taken in quick manner.- Andy Kaplan
- Chief Financial Officer, DonorsChoose.org
After so many years of doing it in a non-transparent fashion, the board should seize the opportunity to be very clear regarding its decision. The benefits of this are that the shareholders will then understand what was done and why. More importantly, the employees of the company will be able to fully understand what the issue was, the deliberations that occurred in the board room and the basis for the board's decision. An additional benefit of this process would be that the media would have less of an opportunity to report what they "think" may have gone on, rather than the straight facts. I'd go one step further, I'd disclose how each director voted. Directors work for shareholders, and have a right to have a clear understanding of what is going on.- Lance Lawler
- Managing Partner, Pacific Radiology
"Board transparency", not sure the world is really that simple. The CEO may be a bad fit, culturally or otherwise, but it is not easy to get rid of him for this. However, now that he has presented a reason for his dismissal on a platter, if he has enough "enemies" on the board, he will go. The only argument is how, and for me, I would support a public sacking - it sends a strong leadership message and a clear signal to both shareholders and other employees. If this is simply a case of a loved CEO who has made a human mistake, the Board would no doubt retain him. Board transparency - depends on the circumstances!- Anonymous
The Managing Director of any organization provide not only strategic direction in the realisation of corporate vision and mission but must ensure proper accountability of investors investment. For the board, in take such decision there must be a "balance view" and in line with the requirement of the law. For every decision, there are legal implications which must guide such decision. The board decision will continue to serve as reference any time any day. Financial reports are crucial reports which serves as decision making document for shareholders, the general public, creditors, financial advisers, government and potential investors and the implication of presenting "false" reports by the most senior executive in an organization calls for concerns and it is paramount for the board to take decision so as to repose confidence in the mind of various stakeholders. With proper control top management must ensure adherence to these controls and any violation must dealt with in accordance with the law.
- David Cawlfield
- Principal Engineer, Olin Corporation
With maturity, the perceived value of integrity grows and grows. As a scientist, transparency is not just a corporate value, it is an essential principle of all progress.There is lots of interesting debate here and many good arguments, but for me the decision is obvious; terminate for cause. Leaders must be expected to lead by example and held to high standards. Anything else is ridiculous and ultimately counterproductive.
- Anonymous
Too many Leaders? Too Less Transparency?In my 25 years of experience in strategic-planning and in the systematic organization of coordinated board activities here is my humble opinion.
Ironically, such as concept of "having too many leaders" in one central structural locality DOES EXIST, for example, vis-?-vis a company's board membership through managing director/principal seats.
Managing Directors/Principals/Associates take-on technical, fundamental, and research roles in various organizations.
However, these roles can be easily accomplished by "fewer players," thus creating less "noise" and creating more transparency and accountability within an organization. Who is really at fault and where does the entailed transparency lie?
Strategy should be handled by the Board of Directors.
Legal implications should be handled by the lawyers, that is what they are paid for.
Everyone else that is in between the actual Board of Directors and the Lawyers are mere "stand-ins" looting shareholder value.
Create Transparency with Less Noise. Create Less Noise with more Effective & Efficient Leaders. Cut the "Fat" out of the management pools and transparency will ensue.
Does a company really need to have multiple Managing Directors/Principals and Vice-Presidents? Just outsource this "same work" to Analysts and cut the real "Fat" and hone in on the transparency and accountability that is created from such an act.
- Stephen Basikoti FCCA
- Accountant
Transparency involves shining a light on something and it should be used responsibly. Not everything should be shone on. For instance, if you are leading a group of people in a jungle at night and you become aware of some predator, you have to weigh carefully whether to shine your light on it or not. Your primary concern should be the safety of the group. The predator may react swiftly and aggressively to being exposed in such a manner. On the other hand, the sight may overwhelm some faint-hearted individuals in your group.Directing an enterprise is like taking a group in a jungle at night--so many unknowns and dangers lurk in the dark shadows. Time and patience may be needed to uncover most of them and understand them to a reasonable degree. This is what the board of Acme may need. Do they have the full facts of what the CEO has done or are they relying merely on the word of two of their numbers who may have some personality issues with the CEO and may have been false-fed by disgruntled, misguided or over-zealous employees? [Sounds like the CEO has had a track record of living by stated values for 5 years.] Does the entire board understand to a reasonable degree the implication of each option they have for dealing with the matter?
The situation the Acme board faces is akin to facing a predator in a jungle--you have many options like running or climbing a tree or running into a cave or standing still until the predator backs off and they all have pros and cons. To determine the best option, it is necessary to focus on the safety of the group you are leading, that is, the stakeholders and particularly the shareholders. If they are faint-hearted they may give up if all details about a situation are revealed to them, as evidenced by HP losing $13 billion of its value. If you choose to run, there are things in the undergrowth that may trip you up. For the Acme board, there is potential for a distracting lawsuit and bad publicity if they choose to fire the CEO.
Hence, after establishing the veracity of the accusations and their true nature, the Acme board should warn the CEO if the matters are borderline. However, if it were established that he actually acted fraudulently and legal opinion states that he would not be able to defend his actions in a court of law, then the best option would be to fire for cause. It would be unethical to reward unethical behavior.
- Geoff Smyth
- Manging Director, Oxis Consulting Ltd.
Have we been watching too much reality television ? Has the cult of personality overtaken substance in our way of thinking?The ACME CEO has abused his position and appropriated company funds. He has to go, as would any other employee or officer of the company who betrayed the trust of the organisation's stakeholders in such a material manner.
Failure by the board to make this first decision would have a serious impact on the fundamental role of ethical values on the culture of the organisation and undermine the effective implementation of corporate governance procedures within the organisation. The board would then become complicit in the abuse and fail in its duty to the stakeholders.
Having taken this, perhaps difficult, decision the board then has to minimise the negative impact of that choice. The point seems to be lost however that the impact of a termination with cause should also have the errant CEO quite worried. In my view, the CEO should be made aware of the irreversible decision to terminate his contract and be given the choice to go quietly with a significantly reduced severance package and a "non-compete" clause in the severance contract or face the costs and almost certain damage to his reputation of a very public dismissal with cause.
Inspirational high-acheiving business leaders are a relatively scarce resource but, if integrity is not ingrained in their professional and personal standards, the inspiration will not endure and the high-acheivement will ultimately be unsustainable. ACME will recover from the loss of this CEO and, with the right decision on the replacement by the board, go on to better things.
The board will have fulfilled its governance obligations and protected shareholder value in the longer term. The question of transparency regarding the details of this transaction should, in the interests of all parties, be limited to the legally required disclosures.
I am somewhat perplexed by the HP case. It does seem that the board got it wrong in its handling of the situation. To think that the terminated former CEO has now been appointed by Oracle, a sector competitor, and the HP board is now taking legal action against him, puts HP on the back foot and the company still has to face serious short-term shareholder value erosion.
This value destruction highlights the way the markets react to cosmetics rather than substance and it should be of concern to us all. Either HP's pre-termination value incorporated a $13 billion bubble or it will recover this value in the medium term by making the right business decisions. Oracle's medium term value performance is another matter.
- Devin Patel
- Student
After reading many of the opinions, its clear to me that the notion of "board transparency" is really quite a balancing act.The objective of an independent board is to give subjective insight and most importantly keep the shareholders interests in mind. But who is to say that specific agendas will not contribute to their decisions.
I understand at a CEO level there is little room for error. But to fire an individual on ambiguous allegations that directly hurt investors is,to me, a wrong move. It was a drastic decision with little thought and heavy handed bias.
The HP situation reinforces the idea that ethics cases are never black and white, but then again what is?
- Anonymous
The modern information acquisitionj methodology enables all to know what actually transpired. It is better to be open with stake holdes than, secretive. The loss of face and in turn confidence of customers or stakeholders cannot be compensated by any means and hence, better to be transarent than other wise. The mess of Commonwealth Games to be held in India is all due to false sense of security and 'no transparency' in working of the organizing committee.- Anonymous
When a board finds itself in a deep hole, its first task is to stop digging. Two prior events created the hole.1. A severance package with a negative link to performance. Under the agreement, the CEO is entitled to an enormous payout unless he is plainly derelict. This is a perverse structure. Payments should be structured as a fraction of the improved value of the company or a fraction of annual salary.
2. Unspoken truths. In the case of Hurd, there is evidence that the actual reason for the board's actions had little to do with expense accounts or dodgy consultants. The core problem was the massive loss of confidence by the board caused by Hurd's slashing of every budget but his own and the resulting loss of key executives. If true, the water is hopelessly muddled and shareholders will pay the price in unreasonable severance.
What should the board do? Assume that it has a full audit of CEO expenses and has determined the extent of the losses. Were the mistakes designed to conceal relevant facts from the board? Did the errors benefit the CEO personally in a material way? It is not clear that the Hurd errors met this test. If not, the executive should be warned, not fired. If they do meet the test, the termination should be for cause.
If however, the board used business expenses and "harassment" charges as a pretext for firing a CEO for other reasons, then shareholders should terminate the board -- for cause.
- Gerard Danford
- Faculty, Haaga-Helia University
If we view the firm as a legal entity then transparency can be primarily related to the political regime. Transparency should be higher in countries with a legal/judicial regime characterized by a common law legalorigin and high judicial efficiency. Furthermore, transparency should be higher in countries with low state ownership of enterprises, low state ownership of banks, and low risk of state expropriation of firms' wealth. However in order to increase current transparency levels firm need to move from minimal legal transparency requirements to a more ethical driven paradigm. Socrates, felt that a person must become aware of every fact (and its context) relevant to his existence, if he wishes to attain self-knowledge. Transparency of boards should meet the Socratic test.
- Dr S. A. Visotsky JD, LL.M.
- Chairman, Vitech Group LLC
Also, any CEO, ours included should be aware that they are not in charge of anything except Managers, The CEO's job is to push them for results, while holding them accountable. We dictate to the CEO and he delegates to "our" Managers. That's how we maintain control of "our" organization. You step on it, you're out. Ice cold. It is made clear from the start, that we don't care how it's done elsewhere or by whom. As soon as a CEO thinks it's "his" organization, you have lost him. We are fair, but hard. The CEO is in charge as long as I say he is, and reports to me twice a day. Integrity is doing the right thing, even when no one else is watching. Old School has it's advantages- Bev Stehn
- Director of Nursing, Kirkbrae Presbyterian Homes
So the Board is considering terminating the CEO without initiating an independent investigation of the allegations. Maybe the CEO is putting pressure on the accusers to improve their performance or antother areas for improvement. The Board should first be very sure the accusations are true and accurate. Transparency needs to be evident not only in the Board room but in all aspects of the organisations operations. Transparency does not necessarily require the commercial information but it should be informative to the shareholders as well as other stakeholders.If the allegations were proven to be true, the CEO would need to be terminated. What has the reputation of the CEO been prior to this incident? Could a transparent termination be an advantage to the organisation? Recently in Australia a CEO was 'LET GO' in response to sexual harrassemnt claims . The business was predominantly femal fashion. The share price dipped at the time, but 5 months later is very close to the pre incident price, eventhough a court case is looming.
So - would I recommend transparency - yes - there is always a pssibility that the CEO will repeat his practice of 'fiddling the expense books' and questions may be asked about his departure form Acme - the long term potential negative reprecussions is real
- Paula Argento
- Partner, Argento International Law Firm
What is the back up plan for Acme? Has the board a qualifed and competent replacement?Throwing the captain overboard without a qualifed successor is foolhardy and virtually guaranteed to cause a share price decline. If you want to keep the CEO in line to begin with, continually remind the CEO that there are strong understudies in the wing, instead of glorifying him (or her). Be ready to announce the good news of the new appointment with the bad news of the dismissal, so the shareholders understand that a competent hand is on on the rudder.
- Vanitha Rangganathan
- Malaysia
When integrity is forsaken, there really isn't much else to say about a person's moral fibre. We retain these individuals to avoid legal complications and keep details under wraps to avoid greater exposure of ALL involved in the perpetration. I say 'ALL' because I'm quite certain that there are many players surrounding the financial misdeeds.I would honestly like to believe that some good comes out of the actions of management - unfortunately, I see none. Errant CEOs, much in the vein of Mark Hurd (whose actions have had no impact whatsoever on his future as he's busy charting a new path in an equally illustrious organisation) and the elusive Acme CEO, will continue to erode both the image and financial stability of an organisation if management favours discretion as opposed to upholding integrity.
No prize for guessing who has the last laugh...