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.