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Why aren't more CEOs fired?

Despite an environment of record layoffs of workers, you don't hear very often about a CEO being fired. Why is that?

The past couple of years have set a record for employee layoffs. Unfortunately, because of this, news of layoffs have all the shock value of a "78 degree and clear" weather forecast in San Francisco.

But what does perk interest is when a CEO is ousted from an organization. Data shows that only 2% of Fortune 500 CEOs on average are fired every year. It seems like a CEO can be the spawn of Satan and routinely taser his employees and still stay gainfully employed. It's always seemed a little weird to me that a company can be bleeding money so much that they have to lay off 25% of their workforce but retain the CEO. I understand that revenue loss is mainly due to uncontrollable economic conditions, but the management of the top guy or gal has to play into a poor financial picture more often than we are led to believe.

So what's the deal? Why aren't more CEOs ousted by their Board of Directors? Wharton finance professor Luke Taylor wondered this same thing. He set out to model the decision to fire a CEO and quantify the forces at work.

One of the conclusions Taylor reached was that more CEOs aren't fired because of personal reasons, including the directors' own ties to the CEO, or considerations that firing the CEO may put their own jobs as directors at risk, or hurt their chances of being nominated to other boards.

I think these conclusions all make sense. I have much sympathy for those who have emotional ties to the CEO. However, middle managers are forced to face this issue time and time again.

As for a firing putting a board member's job at risk, I would say so. The implication for shareholders is that the board members were accomplices to the behavior that caused revenue loss.

I can also see how a CEO firing could affect chances of being nominated to another board. Let's face it, unless a CEO committed some egregious sex crime, a board member's participation in his ouster could be looked upon suspiciously. It's not necessarily just, but I think most CEOs would subconsciously consider such a person capable of forming a cabal against him at some time in the future.

I'd like to hear from anyone who has witnessed a CEO firing who can attest to the fallout.

About

Toni Bowers is Managing Editor of TechRepublic and is the award-winning blogger of the Career Management blog. She has edited newsletters, books, and web sites pertaining to software, IT career, and IT management issues.

44 comments
wwwqueen
wwwqueen

Unless you have seen www.burzynskimovie.com. The documentary is not one of those touchy/feely documentaries with no proof, either. If you want to see the result of all this and the real cost to the American public. See the movie. You can download it on Amazon.com for $1.99. Then go to the site and see all the other documentation about what's going on.

ron.dondelinger
ron.dondelinger

Over the years, executives of Northwest Airlines (pre-merger with Delta Airlines) had achieved the following: 1) Controlling interest in the airline by means of leveraged buy-out, where they had to front little of their own money; 2) as major employer, coaxed $800 million "loan" from state of Minnesota that was never fully repaid; 3) awarded themselves bonuses during good operating years; retained employment AND bonuses during bad operating years, 'cuz they were the "most experienced and best people to guide the airline through bad times"; 4) nearly succeeded in securing ALL gates at Mpls/St.Paul Int'l Airport (NWA controlled 80%) and forcing competitor airlines to relocate to the secondary Hubert H. Humphrey Airport -- only to be thwarted by an ill-timed recessionary airline market; and of course, 5) golden parachutes aplenty when NWA was acquired by Delta Airlines, while rank-and-file employees suffered pay cuts and lay-offs. And I dare anyone to justify seven-figure salaries, when untold numbers of blue-collar folk put up with the same long hours, stresses, and (worse) working conditions just to earn a living wage. America is the land of dreams, but our business culture is seriously out-of-whack.

rmazzeo
rmazzeo

...should be fired, regardless of ties to this one, that one & the other one. As a matter of fact, those on the front lines of any company should be paid more than the "executives", since these are the ones that do all of the work. They don't push paper, enjoy perks & make nonsensical speeches to schools & their shareholders - they work, often long hours for little pay, or their jobs get "outsourced" to India - & still these companies lose money. Corporate America needs to be turned on its ear...

delf20k
delf20k

If bonuses had to be approved at the company meetings and no directors or the CEO could vote or use proxies unless all the shareholders were on the board the CEOs may behave more accountability to get the bonus.

been-there-done-that
been-there-done-that

I read with interest all the comments here and most hit the nail on the head. What they fail to mention is that had most of these workers been in a union they would have some level of protection against these bad management tactics. If you have ever been a member of a good union you know what I mean. If you are not then you are as someone put it road kill, fodder for the fats cats to do as they please without any repercussions. Union representaion allows the hard working middle class to come to the table and negotiate with these greedy bastards and in many cases win fair wages and decent benefits where without they would not have gotten any these. That is all we ask for, a decent living wage and a retirement with dignity. That is why today the big business politcians are attacking the public workiers unions. Once there are no more unions then big business can go back to raping the workers with no consequences. Unions did not cause the crash - the greedy bank CEOs and Wallsteet caused it yet they are STILL raking in huge bonuses in record numbers. They are distacting the taxpayers anger by redirecting it to the middle class union workers. If the unions fall we will all be nothing more than slaves with no power to negotiate anything. Your fired !

colin.t3
colin.t3

The recession is used as an excuse to cover their own mistakes. These are people that are supposed to know where the economy is headed and actions to take to avoid disaster.

joecurtis
joecurtis

On the surface, it's the "Peter Principle" at work. But, the "Peter Principle" only takes hold when the board (the next level up) becomes so invested in the hiring decision that they can't admit error, let alone correct it. That's the failure of leadership. I believe their hubris makes it easier to hid the error (and let the organization suffer), than to publically admit the mistake. But, what do I know, I'm just a soldier.

jth4944
jth4944

An interesting and timely topic. Unfortunately, CEO and their boards are by design mutualistic and self serving. It would behoove public companies, and society, for public companies to be governed via 2 or 3 independent organizations not dissimilar to the independent branches of the government. Ironic as it may sound, public companies should operate more like the government, and the government more like companies. Keeping them independent is the trick. Perhaps the only way to promote, if not insure, independence between the CEO and the board is for board members to be elected by all shareholders AND employees with 1 vote/person regardless of share ownership.

cwayneu
cwayneu

I was in middle management long enough to learn that the "Good Ole Boys" network is alive and well in the board room. They take turns proposing and voting on each others compensation packages. Only people suspect of faltering in their extreme greed syndrome are voted out.

tech_ed
tech_ed

What I find amazing is that the CEO is the first to make the correlation between their salary and their income generation potential with the company is doing well, but fail to make the same correlation when the company is doing poorly. When a company is doing well, the CEO takes all the glory (and profits in salary and bonuses). But when the company is doing poorly, the only solution the CEO can see is to get rid of other people so he can maintain his bonus level! And even if a CEO *DOES* get canned, they rarely become regular workers...they remain in that upper echelon of rarefied air-breathers and hop from cloud job to cloud job...Take Nardelli! he drove Home Depot almost into bankruptcy, yet now he's heading up Chrysler! And don't get me started on Bernie Ebbers! These people rarely get their comeuppance and that's a shame!

NickNielsen
NickNielsen

CEO A sits on boards B, C, D, and E. The CEOS at those companies sit on the board at A. It's a massive "I'll scratch yours, you scratch mine" culture. And as long as it exists, CEO accountability will be an oxymoron.

seanferd
seanferd

Here's an extreme example: Microsoft Buys Nokia for $0B

mikifinaz1
mikifinaz1

Congress, the fat cats protect each other Wall Street, the fat cats protect each other Big and small companies, the fat cats always protect each other That is the way of the world, always has been, always will be If you are a regular person, you are road kill

Tord55
Tord55

Here in Sweden the unions have representatives on the board of directors, and they not that seldom themselves become CEOs, so I think the closer the board is to the CEO, the unlikelier is that he is ever fired, no matter what he does/misses.

inkwell
inkwell

for a company to fire their CDO it would be tantamount to admitting the management screwed up. The preamble to our labor contract stated - The Company Has The Right To Manage Or MisManage as They See Fit. And They cartainly See Fit.

Cisco2035
Cisco2035

Thanks for the great post Toni. I think the compensation topic needed to be mentioned more but Andy and the others helped take care of that. Not everyone is qualified to be a CEO and that's why they make (and many deserve) the big bucks. However as with the rest of us, compensation should be commensurate with performance and economic conditions. Also if golden parachutes consisted of company stock (valued at the date of departure) instead of cash, perhaps CEOs would act more thoughtfully in the first place. At the better companies I worked for, when times were good we all got the rewards and when times were tough, we ALL tightened our belts - upper management even more so. On a similar note, when you look at how much the USA is bleeding money and we still give tax breaks to the wealthiest, it is not unlike the CEO culture. I admire Bill Gates and his dad for owning up to this. CEO Ballmer doesn't. Heads of dicators are finally rolling in the Middle East and revelations of their huge unearned wealth is sickening. If you are a CEO, please join us in this conversation but don't overlook the subject of fairness.

Alpha_Dog
Alpha_Dog

The reason more workers get fired for BS reasons or laid off than CEOs fired is that they have got lawyers on retainer and a sweet contract. In our organisation the contract is written so that and c-level executive may be fired "at will" just like the rest. It has kept me honest and motivated. I have kept my position for the last 22 years by merit.

bvinson57
bvinson57

This is the inevitable can of worms that I am so glad has been knocked over in this forum. All praises Toni for taking the ballsy stab at this and hitting them at the heart. Let's hope it goes to even bigger audiences for possible national exposure and action. Wouldn't that be interesting?!

g01d4
g01d4

Their ability to reduce staff seems to be one of those rare skills that justifies their hefty renumeration.

jerya
jerya

It's just the "Golden Rule". Those with the gold make the rules!

alewisa
alewisa

Global Crossing's COO was "let go". On the Friday GX had a COO, and Carl Grivener was 'it'. On Monday, the role of COO had been merged with that of CEO, and Mr Grivener became an un-person. At the same time, one of the SVPs left the company. Not that she wasn't controversial in her own right; bumping her accommodation up, putting manicures, etc, on expenses. Oddly enough, her and and the COO would visit the UK together, staying at the same hotel, using the same gym, jogging together.

G-Diggety
G-Diggety

Taking responsibility for one's actions is something the little people have to put up with. Not so with the ruling class.

condor01
condor01

I'm surprised that no one has mentioned the most likely reason why we don't see more Chief Firings!Buy-In's and Buy-Out's are expensive, you can't just "Fire" a CEO you must prove he/she hasn't met their contract. While working at what is now E-Trade, the CFO returned from a trip to Boston and told me she had just signed on with Bear Sterns there for 1.6 million and had to give her resignation here. Before she had a chance to say anything she was called into the CEO and Presidents office for a meeting. The "company" was being sold yet again and they had to buy her out. Her buy-out clause was 2 Million. Not a bad week for her, a 1.6 Mil buy-in and a 2 Mil buy-out.

bruscke
bruscke

Agreed. The problem is in the manfunction of "corporate governance"; and, I fear, this problem is even more seveire than is our proglem with civic governance (federal, state, municipal). With the emergence of the large corporation (as with the large city, state, country) the "owners" (taxpayers) are increasingly disassociated from thier participation in governance. Shareholders sign proxys to "vote with management" (voters vote the party of their parents/social-group/etc.) "Institutional investors" - mutual funds, pension funds, insurance companies and the like - have the controlling interest in most large corporations but - thru neglegence or management resistance - don't vote for directors who will control management. Everyone with a vote delegates his/her/its own best interest to the CEO. We, the beneficial owners (taxpayers) have to wake-up and insist that we rearrange our representative-government institutions to make them our agents rather than the agents of some other interest such as the CEO (some collection of special interests). In either the corporate or civic sphere, such a rearrangement is difficult to concive of and still more difficult to engineer.

john.jelks
john.jelks

So this isn't even newsworthy. The "golden shower" flows downhill, off the Teflon shoes of CEOs and onto the employees.

Tony Hopkinson
Tony Hopkinson

For further insight, see www.BridgesForSale.co.uk?Gullible=true

deafracer
deafracer

Less CEO's are let go because the company has to pay the "Golden Parachute" for them. It is cheaper to lay off people than to pay the CEO. Eliminate the retirement fund and hold them accountable for their management is the best thing to do.

settle.g
settle.g

CEO's live under a different set of rules than the rank & file. They don't have rules to live by! Really!!! The fact that so many CEO's have ties to the BOD is most certainly a conflict of interest on the part of both parties. I have personally witnessed one CEO being shot down and the company moved right along. It didn't get better, it just continued. CEO's are, almost to the man or woman, delusional. They really believe they are doing a great job when they really have no clue whatsoever. They not only drank the Kool-aid, they made it!

sissy sue
sissy sue

Perhaps we are making progress in that more people see CEO compensation and lack of accountability as a problem. I don't think that the work atmosphere or the economy will make any real progress until this changes. Without a major change in the way in which business is conducted, we peons will continue to see declining prospects and lifestyles while those on top will continue to live very comfortably in their ivory towers.

TasMot
TasMot

Watch the news and the stock price of a company. When a layoff is announced (even if the full layoff is never achieved), the stock price jumps up because the company is "cutting costs". If a CEO layoff is announced, the stock price falls. There is no follow-up about whether the company does better or worse after the execution of the announcement, just an immediate affect of the announcement of the change. I used to work for a company (and now I'm a competitor) as a consultant. Every quarter for 3 years they announced and laid people off (the stock price skyrocketed), they even laid off fully billable consultants (while they were at client sites). The announcements always included that they were doing this to be fiscally responsible and that they were growing the consulting division. I could never figure out how you could grow a division by laying off the billable resources. Now I have my own consulting company where I compete with them by working with their clients on their products by taking contracts away from them. I have been much better off this way.

wlskelton2
wlskelton2

Indeed, it is the ???incestuous??? collegiality between CEO???s and Boards that is ruining corporate America at the expense of the rank and file. The same is true of the SEC, Treasury, Wall Street banks and brokerages, and insurers. There is a revolving door in the hierarchies of these companies and the government agencies tasked with regulatory oversight and legal compliance. Legislators are duplicitous as well. Everyone turns a blind-eye to blatant corruption, because of the fraternity like relationships. Hell, even the corporations pay fines the CEO???s rarely incur, while not admitting to any crime or malfeasance. Typically, fines are a fraction of what the corporation realized in profits and even the bonuses received by the offending CEO.

allanrbowman
allanrbowman

Boards are often made up of other CEO's. There is a good ole boy culture that says if I sit on your board and give you a great salary, large bonus, and golden parachute, then I expect you to do the same for me when invited to my board. How many shareholders actually have a clue about the structure of the board of their investments or how those directors actually vote. I'd say other than G. Soros a few others, none do. The pathetically inadequate voting and proxy information may provide a brief bio on the board member but says nothing about conflicts of interest (ie. does the CEO sit on HIS/HER board?) or about how they vote on issues of strategy and compensation. For a shareholder it's nothing more than a Vegas crap shoot. As Norman Augustine pointed out in his book, "Augustines Laws", there is often no correlation between a CEO's compensation, longevity, and their performance. Go figure....... Does this make shareholders, employees and other exec's feel like peasant's? It should because you are. American's are always claiming "we're number one". Check out Germany, high tech manufacturing GROWING, jobs GROWING, exports GROWING. How can this be? For one thing, German corp's have employee or union representatives as 50% of the board. The other 50% is outside directors. The chairman is a tie breaker. Because of this their is no outsourcing unless agreed by all, the CEO's of German co's typically only earn 5 x that of their other senior employees not the 1000X or more in the Greedocracy that the US has turned into. What to do, hope you will be one of the lucky ones and win the CEO lottery. Otherwise, keep filling in your "performance" reviews, where you must prove "accountability" - Unlike Your CEO that for the most part, has none.

Dr_Zinj
Dr_Zinj

I recall a situation almost 10 years ago where the CEO of a company I worked at was sexually harassing a young man on multiple occassions. The young man left the company with a rumored 6-figure settlement, remaining employees were ordered gagged on the matter (and subjected to weeks of sexual harrassment training), and the CEO cruised happily along. Shortly thereafter, the company downsized over 30% of their workforce (including yours truly), with the CEO and managers getting a raise in the process. And I've never been so glad to shake a company's dirt from my shoes.

blarman
blarman

Nearly all CEO's of major corporations are hired for a minimum period of time - usually 2-3 years. During that time they are nearly immune (unless convicted of gross impropriety like the Hurd scandal). Combine that with the "golden parachute" provisions that include a hefty buy-out cost to oust a CEO and the corporate cronyism associated with BoD members, etc. and it isn't hard at all to see why so few CEO's get let go. Take for instance, Carly Fiorina. After nearly destroying Lucent, she got hired as CEO of HP to follow Lou Platt because of her connections. She then engineered the Compaq merger, made $34 million in bonuses off that action alone, and was responsible for firing more than 15,000 HP employees. It took gross mismanagement (HP's stock tanked and she created bad blood with the Hewlett and Packard families) to finally get her fired, and HP paid an enormous price for it. And all so she could then run for Senator of California (her political ambitions were well-known).

RexWorld
RexWorld

The former HP CEO Mark Hurd was only fired because he got accused of sexual improprieties and the investigation into those accusations revealed lying on his expense reports. It pretty much takes that level of event, an actual or accused crime, before a board will take action against a CEO.

Andy J. Moon
Andy J. Moon

...are a highly incestuous "family." Once a person believes they can count on another, that person will try to get their supporter appointed to Boards, talk them up around other movers and shakers, and generally get their supporter introduced and embedded in as many places as possible. One day, the supporter may be on the Board of a company that is considering a new executive and might be in a position to return the favors. The part that I love is that the CEOs can make tens of millions of dollars in salary along with even more in stock options, but they don't seem to see that expense as "bleeding money," they just lay off more of the people who actually do the work in their companies. A CEO salary of $50 million could hire a thousand workers at $50k per employee. Which would be more productive?

Cisco2035
Cisco2035

Sorry fat fingered problem. Meant to give this post a + vote not a minus. Excellent point about a befuddling concept for us regular workers.

AnsuGisalas
AnsuGisalas

it's not like anyone else would scratch *that*... except another one with mitts just as dirty! ;)

Jango7777
Jango7777

That will be real good. What is the point just us talking about it in this forum. Any new executive comes in these days to any company - is through 'connections'. Then.. he/she brings his/her own buddies to the next level below and other key positions - to make places for them, others are let go in the name of right sizing. Chain continues.. all levels of management. By the way, I would imagine that "having connections" is the real skill needed for management positions these days. Second important skill is cutting cost by letting people go or outsourcing - in the process make sure that their cost to the company is buried.

thezar
thezar

If they are ruling, they have no class! That's bound to be someone's rule.

sboverie
sboverie

I agree that layoffs tend to add to the stock price. The stock market keeps rewarding this kind of management and it seems that the best way to turn a floundering company around is to cut personnel until it, um, helps.

mariolorenz1969@yahoo.com
mariolorenz1969@yahoo.com

I am learning now that US public companies are run like goverment in third world countries, I live in one of those... and what you are describing is just like our goverment do the job... political parties just keep quiet about serious issues so all other will do the same when their turn to govern the country arrive, they will for sure get special favour from all of them. in conclusion, our past and current president could be a fantastic CEO in USA if they are not accountable for nothing.

cherokee2
cherokee2

Using that chain of thought we need to include the chancelors and administration of our educational systems. Seems like the UC system has a habit of paying 300,000 - 450,000 salaries for chancelors and then habitually reduce teaching staffs and raise school tuition. hmmm, sort of funny, that.