Produced by Julie Garland-McLellan, Consultant at AltoPartners Australia and non-executive director and board consultant based in Sydney, Australia.

Contribution by Richard Sterling, Managing Director AltoPartners Australia. Richard is a seasoned executive search consultant. He works closely with CEOs to build highly capable leadership teams.

This edition of the newsletter was first published on The Director’s Dilemma website and the full newsletter is available for viewing here. To subscribe to future editions of the newsletter, click here

The Director’s Dilemma - July 2020

Our June dilemma looks at how to handle the ramifications of an out of control CEO.

Xuan joined the board of a not for profit. At his first meeting he was astounded by the CEO’s demeanour; the CEO tried to run the meeting by telling directors when they had dscussed enough and what the outcome or decision should be. Xuan spoke with the Chair after the meeting and they agreed that this was not good.

Xuan joined the Audit committee. The CEO did not attend the AC meeting although he had been invited. Staff didn’t know where the CEO was and sggested that he might be travelling since he travelled ‘a lot’. Again, Xuan discussed the issue with the Chair and discovered that the CEO did travel frequently, booking his own travel and claiming expenses, which the CFO then reimbursed.

For the next board meeting Xuan prepared a paper recommending a travel policy that included authorisations before bookings, and ‘manager plus 1’ approval of reimbursements. CEO travel and reimbursements were to be approved by the Chair and tabled for noting at the next board meeting.

The paper was not in the board pack sent out before the meeting. Nor was the discussion on the agenda. Xuan again spoke with the Chair who said he would raise the issue with the CEO. Two hours later an email was sent from the CEO to the board saying that he “resigned with immediate effect”. Over the next few hours directors emailed each other and agreed that they wished to accept the resignation.

The Chair wrote back politely accepting the resignation and asking for a meeting to talk through the administrative details. The CEO responded that he retracted his resignation, considered that the board were undermining him, and wanted to be reinstated or terminated with ‘appropriate benefits’.

Xuan has no HR or legal background. How can he support the Chair in finding a good resolution to this mess?

Richard’s Answer

The CEO resigning is the best thing that happened to the not for profit. The Board should not entertain any reversal of the CEO’s resignation whatsoever.

The Board needs to act swiftly and decisively. A protracted affair has the potential to harm the reputation of the not for profit, demoralise staff and ultimately be very expensive.

Given that the CEO is making allegations and demands, Xuan should recommend that the Chairman engage an employment lawyer to guide the board as to their legal position and what they should do next to minimise any potential harm.

At the same time, the Board should instruct the CFO to investigate the CEO’s travel and all other expenditure for at least a couple of financial years. Sounds like the CEO may have something to hide and could be in breach of their contractual and other fiduciary obligations. The findings must be shared with the employment lawyer.

Once this matter is resolved the Board must take a deep and hard look at itself and consider why they let the CEO behave so inappropriately for so long. At the same time, the Board will need to revisit the NFP’s policies and procedures playbook to ensure that money and time being spent by all staff is directed exclusively to furthering the mission of the NFP.

Finally, the Board must give careful consideration as to the attributes of their next CEO and how the hiring process should be conducted (from defining the position through to background verification) so that mistakes of making a bad hire are not repeated.

Julie’s Answer

Xuan does not need an HR background to recognise that something is horribly wrong between this board and its CEO. The whole board should provide CEO oversight and Xuan can expect help from his board colleagues. His (quite correct) instinct to use policies to control expenditure may have triggered this incident but he is not responsible; this is not just for him and the Chair to resolve.

This could get nasty and Xuan must ensure emotion does not cause anyone to say or do something unhelpful. First the board should delegate the matter to a committee. They should get copies of the CEO’s contract, last performance review, and a list of all travel taken in the last year or two with the costs, destinations, duration, and purpose of trip. If there was a travel policy or prior agreement about travel the board should also get that.

Concurrent with getting this information they should appoint a specialist employment lawyer. This is important, even if the board has HR skills, or if the company has a senior HR manager; they need impartial expert advice.

All my experience tells me that the board should part company with this CEO. It may be cheaper to accept retraction of the resignation and then terminate for cause. It may be less disruptive to accept resignation rather than an accusatorial termination. The lawyer will help plot the best course.

An interim CEO may be appointed while the board begins a search for a permanent solution. The board should consider getting training to raise their skills in CEO oversight.