Editor’s note: This article appeared in the Jan. 11, 1993 issue of Fortune as part of the article “The king is dead.“
When directors lose confidence in a CEO, how should they proceed? Should they boot him so fast and hard that all he leaves behind is a smoking silhouette in the boardroom door? Or should they employ the genteel arts of reason, angling not just for a resignation but for the victim’s collaboration in his own demise? When FORTUNE put the topic to directors, lawyers, scholars, historians, experts on organizational behavior, and, several CEOs (including booters and the booted), we found surprising unanimity on the right and wrong ways to conduct a coup:
Don’t be in a hurry. A good coup takes time. Says Eugene Jennings, professor emeritus of business administration at Michigan State University: “It’s paramount that the board maintain the appearance of control. They can’t let the media or the shareholders set their agenda.” Agrees lawyer Arthur Fleischer Jr., adviser to many boards: “What you’re trying to do, as a board, is maintain a sense of an institution functioning well and on schedule.”
For reasons of conscience (and to protect yourself from being sued for defamation or wrongful discharge), make sure the company’s underperformance really is the CEO’s fault. Remember, too, that directors often feel indebted to the CEO who recruited them. Charles, O’Reilly, professor of business at the Haas School at Berkeley, likens the situation to a Tupperware party. “The CEO invited you; he’s serving you coffee and cake.” You kind of hate to put a bullet in him.
The dean typically begins with informal parleys with fellow outside directors—over drinks, a meal, a game of golf. Says Walter Wriston, who is a director of ten companies: “The only thing to do is have a quiet dinner to talk the problem over.” Explains Walter F. Loeb, of the Ames Department Store board that booted out CEO Stephen Pistner in December: “The conversations must take place entirely in secret. Don’t take notes. Not taking them allows everybody to speak more freely.”
Eventually the dean may communicate the outsiders’ displeasure to the CEO, to give him a chance to shape up. If he does not, the board is then free, ethically, to shoot him. In cases where the company’s performance is merely bad (not atrocious), evidence of the CEO’s unfitness needs to be accumulated. His vacation may prove the ideal time to gather ammunition. This often happens in the political sphere, says Robert Conquest, a Hoover Institution Fellow: “One day Khrushchev was the big guy, getting greetings from cosmonauts in space.
Finally the day of execution arrives. Who should pull the trigger? The job is best left to those who know the CEO well. Says Emory University business professor Jeffrey Sonnenfeld: “Two or three of his friends from the board take him out to dinner, tell him, and listen to him vent.” Having more than one director present is advisable, since it reduces the likelihood of arguments later over what was said.
During the killing session, it’s wise to belabor the CEO only with failings he can’t dispute. James Calvert, chairman of Aqua-Chern, a maker of boilers in Milwaukee, had to remove the head of a company he will describe only as “an NYSE-traded manufacturer with $300 million in sales.” He and his fellow directors believed the CEO had been abusing his expense account. But they confronted him with only one fact: Profits had been sliding for several years.
Okay, you’ve shot him. He’s vented. He’s compliant. At this moment, just as you taketh with one hand, you probably should giveth with the other. Being magnanimous in his defeat can defuse a potential problem. He’s out as CEO but, if he wants to be a sorehead, he can linger as a member of the board; you can’t vote him off. And he can do worse. After Foremost-McKesson booted CEO Rudy Drews in 1974, he returned arm in arm with Victor Posner, who launched an unsuccessful takeover attempt.
Saving face may be the CEO’s paramount concern. Here the board has considerable leeway. It can allow the deposed to reward loyalists inside the company with promotions or bonuses on his way out. It can allow him to keep his club memberships for a while. At the very least, it can let him have a hand in crafting the press release announcing his change of station. When Ford eased out Donald Petersen, directors reportedly told him he could call it anything he wanted. For reasons best known to him, Petersen said, “It’s time to repot myself.”
The board can even provide a CEO with an excuse for leaving. Has he always hankered to run Planned Parenthood (or some other name-brand charity)? Make a few discreet phone calls to see what positions are available. “It’s involuntary outplacement—what I call the buttered slide,” says Don Zuckert, a former board member of the Ted Bates agency, who helped slide out a Bates chairman.
Once the trigger has been pulled, the speed of events becomes important—Machiavelli believed a successful coup could take no more than 24 hours. Get a news release out right away. Don’t shoot him on a Friday and wait until Monday to announce it. That gives him a weekend in Elba to brood, stew, plot revenge. Thursdays are best: If you dump the CEO in time for Friday’s newspapers, by the weekend the event is viewed as a done deal. The best coups, says Quinn Spitzer Jr., CEO of management consultants Kepner Tregoe, are executed so smoothly, so deftly, that, come Monday morning, the world is left asking: Was he pushed? Or did he jump?
