The art of falling on one's sword before being fired

By MARK STORY

At face value, just ousted chairman of forestry company Tenon, Sir Dryden Spring, ex-Television New Zealand chairman Ross Armstrong, dumped Warriors coach Daniel Anderson, and a one-time NZFRU board make for strange bedfellows.

What they've all had to put down to experience is the futility of trying to hold on to a job once they are no longer wanted.

When CEOs and senior management are sacked it's usually done behind closed boardroom doors. But the modern mantra of getting executives to "fall on their own sword" - before being pushed - has become a sort of corporate "get out of jail free" card.

As well as upholding the integrity of boards, it means departing executives can preserve as much "street cred" as possible - their primary asset when looking for their next appointment. Speaking before he was ousted this week, Sir Dryden Spring said a decision to move a CEO on is very much a confidence issue.

Where it can become tricky, he said, is where a board is too slow to recognise that circumstances have changed.

"Especially in situations where the CEO has had former wins under their belt, and the board has traditionally supported the strategic decisions they've taken," says Spring who had no choice but to resign his chairmanship of Tenon following Rubicon's successful bid for the company last week.

"If the board doesn't believe they're right anymore, it's time to move them on. When a board loses confidence in its CEO, his or her effectiveness is significantly reduced."

Admittedly, some acts of corporate hari-kari are more justifiable than others. While former Air New Zealand boss Gary Toomey was never going to be CEO of the year, many saw him as the "fall-guy" for the Air NZ board's folly.

By comparison, Chris Tyler, former head of one-time high-flying dotcomer Solution 6, had his departure coming. His resignation followed revelations about a drug conviction.

Poor judgment calls by Frank Cicutto, former National Australia Bank CEO, sent him and his chairman packing. Then there are examples of moral turpitude that saw a Bank of Ireland CEO resign from his $2.9 million a year job after admitting that he'd accessed a pornographic website from his office PC.

These cases clearly illustrate a fine line between being sacked and going voluntarily. As with Anderson's sacking, there's often an air of orchestration. As well as softening the blow, it creates the market impression that the executive is walking because it's their decision.

But Noel Coom, CEO with North Harbour Rugby, suspects whether Anderson had dug his heels in and refused to resign probably wouldn't have made any difference to the final outcome.

He claims the same can be said for his own departure from his role as general manager of Tranz Rail's rail services division.

For the new Australian owner, Toll Holdings, there was no place for the old guard such as Coom within its young, aggressive management ranks. But as in his case, he says most senior executives leave over philosophical differences or performance issues rather than acts of negligence.

Jim Scott, executive chairman of Aquiline Holdings, believes many of the cases of exiting CEOs are as much about disagreements over strategy as they are about performance per se. He believes the general perception of CEOs is far too dependent upon a simple analysis of how is a business is going.

"Many businesses can be efficiently managed - only to end up, due to the actions of competitors or others - looking like rank amateurs," says Scott a former Air NZ CEO. "Bringing in a new person and throwing out the old isn't necessarily the answer in all cases."

Greg Muir's departure from the top job at the Warehouse - over differences with the board - is a prime example. In hindsight, Muir was always going to be on a hiding to nothing while major shareholder Stephen Tindall continued occupying the founder's office.

Coom says he was also on a whipping to nothing considering Tranz Rail's huge sea-change in strategy. Controlling shareholders Wisconsin Rail and Fay Richwhite sold down (ultimately to Toll Holdings) and disappeared, having just hired new management.

They brought in their own people, says Coom and had differing views on the appropriate "go-to-market" philosophies.

"The new owners came in the October and by the following January I was gone," recalls Coom who stepped into his present role at North Harbour a month later. "I decided it was time to step aside."

But even though he knew his days at Tranz Rail were numbered, Coom claims the terms of his departure were managed professionally. Together with Toll NZ (formerly Tranz Rail) CEO David Jackson, Coom was given time to tidy up pet projects and customer propositions before clearing out his desk.

So how should an employer part company with senior executives when it's clear they're no longer wanted?

While there's no single right or wrong way, Coom says there's a requirement for both parties to disengage from each other in a dignified and professional manner.

That's why the terms on which an exec departs - unexpectedly or otherwise - need to be prescribed for contractually, says Air NZ boss Ralph Norris. Many CEOs who find their employment terminated under suspicious circumstances, says Norris, are rendered unemployable or unemployed for a long period.

As neither party wants that, he says the growing realisation among boards - that a CEO might not succeed - means all eventualities need to be covered within their contract.

"CEOs have to realise they've got a limited shelf-life, and must enter with set objectives and how long it will take to achieve them," says Norris. "The danger for CEOs is when they get into maintenance mode."

Unlike most employees, a CEO's shelf life is often determined by the initial term the board places on their contract. That's because fixed term agreements are typically the norm at this level.

The advantage of a fixed term is an agreed expiry date. But it may also lead to different consequences in the event of early termination, says employment law specialist Andrew Scott-Howman.

Unless the contract can be terminated for misconduct (which is unusual) he says the price companies may pay for breaking an exec's fixed-term contract is having to pay out any unexpired balance.

"The realisation that a company may have to pay out if the wheels fall off is one reason why execs may agree to fixed term arrangements," says Scott-Howman of Bell Gully.

Disapproval levels over execs receiving huge payouts are so high across the Tasman that the Australian Government is proposing checks and balances. If approved, large payouts will have to be ratified by shareholders.

Top tips for a smooth departure

* Remove emotion

* The company must be honest with the departing person

* References given openly

* Sufficient compensation

* Both parties being reasonable

* The company being seen to treat the departing person well

* Recognise contributions

* At a senior level keep the media out of it as much as possible

* Confidentiality between all parties

* Signed agreements on departure

* Where restraints are in place, these should be removed if the person is departing involuntarily

Kevin Chappell, Executive Taskforce