How (and When) Do You Fire a Fellow Director?
from
November/December 2002
Thomas Chema, 55
Partner, Arter & Hadden, Cleveland
Fairport Funds, TransTechnology
I
was involved in this once. The issue was that after selling the
company, the founder couldn’t make the transition from owner of a
private company to director of a public company. What complicated the
matter was that he was also the board chairman. We had to face the
music and directly say, “You are putting this company in jeopardy.” We
finally convinced him to resign.
Roger H. Kimmel, 56
Vice Chairman, Rothschild Inc., New York City
Endo Pharmaceuticals, Weider Nutrition International
The
cases I’ve had were where people were not showing up at meetings or
were on too many boards or were no longer up to the quality required as
the composition of the board changed. Usually we asked the board member
closest to that person to go have a chat. You try to position it
psychologically, as if that person has actually asked you if he can get
off the board. You say something like “We feel so badly that we are
taking so much of your time; you’re on so many other boards.”
J. David Hakman, 60
Chairman and CEO, Hakman Capital Corp., Burlingame, California
Concord Camera, Hanover Direct
Replacement
depends on numerous circumstances. The best of circumstances involve
well-placed plans that provide for annual review and a clear statement
of expectations. In the absence of such policy, difficult replacements
need to be carefully orchestrated between other members of the board
and the CEO.
Wade F. Meyercord, 62
CFO, Rioport.com, San Jose, California
California Micro Devices, Microchip Technology
I’ve
asked four different people to leave a board at various times. I had to
pull the trigger because I was chairman, and it was a task I did not
relish. Once the CEO had to step away because of a health problem, but
wanted to stay on the board. And the board felt this was going to be
difficult. You’ve got a new CEO coming in from the outside, and he is
surely going to change things. Every time he changes something, it’s in
essence a slap in the face of the guy he’s replacing. But it’s not as
if the former CEO was being replaced for doing a bad job. So we let him
stay on the board, and sure enough, every little change in direction
drew a response from him. We let it go for a year, but then I met with
him and said, “Hey, this is not working.” He didn’t agree, but he knew
it was coming and went along with our decision.
Barbara B. Grogan, 54
Chairman and President, Western Industrial Contractors, Denver
Apogee Enterprises, Deluxe Corp., Pentair
The
only time I was ever a part of removing a board member was because this
gentleman came and slept during board meetings. We talked to the CEO,
and he told the gentleman he should probably not stand for reelection.
And he didn’t.
|
Duds on the Board 63% say their company has asked a director to resign...* ...and 31% say their boards include at least one director who should be replaced. *Age was the usual reason, but poor performance ranked second. |
Jack McGregor, 68
Of Counsel, Cohen & Wolf, Bridgeport, Connecticut
Bay State Gas, Peoples Bank
Two
or three of the senior board members sit down with a director whose
term is about to expire and tell him or her they are prepared to go to
the full board and propose that the director not be renominated. They
make it clear that if he or she chooses to fight in the boardroom for
renomination, they will actively oppose it. In the two instances like
this that I witnessed, the director chose to step aside quietly.
William H. T. Bush, 64
Chairman, Bush-O’Donnell & Co., St. Louis
DT
Industries, Engineered Support Systems, Lord Abbett Family of Mutual
Funds, Mississippi Valley Bancshares, Wellpoint Health Networks
If
someone is not showing up or underperforming, you can’t put up with
that. The chairman simply says, “The board has decided that the end of
your term is here.” That’s what a chairman’s job is.
Jon Boscia, 50
Chairman and CEO, Lincoln Financial Group, Philadelphia
Hershey Foods
Through
the years, our board at Lincoln has removed directors. We do individual
director evaluations. So 18 months prior to when a director is
scheduled to be renominated, people on the governance committee will
contact each of the other board members to talk about the directors
coming up for renomination. If anything serious comes up, the director
is made aware of it and then given the 18-month period until the
renomination to improve. It’s been very effective. Also, whenever there
is a change in a director’s employment status, our governance
guidelines require that the director submit a resignation, so that also
acts as a way of being able to formally review a director. And we do
have a mandatory retirement age for directors as well.
Ezra K. Zilkha, 77
President, Zilkha & Sons, New York City
Newhall Land and Farming
I
did once suggest that somebody wasn’t attending enough of our meetings.
I took the message to the CEO. This person wasn’t renominated. I let
the CEO handle it, but I’m pretty sure the person knew, one way or
another, that I had something to do with it.
Jean Picker Firstenberg, 65
CEO and Director, American Film Institute, Los Angeles
Trans-Lux
I
served on one board where my term was not renewed. I wasn’t notified
that it wasn’t going to be renewed; I just got a letter thanking me for
my service. Was this the nicest way to handle it? I think personal
contact is always best.
As
for other people being removed, perhaps the most frequent causes are
either not being active and involved or being incredibly negative. I’m
talking about the person who is never satisfied, never pleased, never
feels the company is doing the right thing or doing enough of what it
might do. There’s a great balance between being a positive but
independent voice and being a negative and independent voice.
Marilyn R. Seymann, 59
President and CEO, M One Inc., Phoenix, Arizona
Beverly Enterprises, Community First Bankshares, Maximus, NorthWestern
I
had the unfortunate experience of sitting on a board where two of the
directors were abusively confrontational with each other. We couldn’t
have a cohesive board meeting, because these two were constantly at
each other’s throats in a very unprofessional manner. The whole board
was uncomfortable, since the two attacked anyone who didn’t agree with
them and tried to divide the board. The CEO stepped in and tried to
referee. He finally asked the two not to stand for reelection. I think
the board breathed a huge sigh of relief when it was over. These things
often happen with a board that’s in change mode. When the new members
came on board, they were up to speed on the direction the company
wanted to go in. Ultimately, the experience really made the group a lot
closer.
Jerry E. Ryan, 60
Private Investor, Dallas
AAON, Global Power Equipment Group, Lone Star Technologies
I’ve
only seen it done one way, and I think quite often a board does it this
way because the members don’t really have the guts to do it any other.
What happens is that the board has to get rid of an older gentleman,
and they don’t want to insult him; he’s had a great career, and that’s
why he got on some boards—because he was a wise fellow. It’s usually
not really age, it’s that this person isn’t really able to contribute
anymore, and they don’t want to say, “You’re no longer a good
contributor.” So they take the easy way out and use an age limit. Two
years later they may raise the age limit again, who knows? Because it
really is just a way to get rid of someone who is not able to
contribute. That’s a lot easier than walking up to somebody and saying,
“Actually, you’re brain-dead, so you need to leave.”
Sheldon Lubar, 73
Chairman, Lubar & Co., Milwaukee
C2, Grant Prideco, Jeffries Group, MGIC Investment, Weatherford International
While
serving as a director of First Wisconsin Bankshares, I had the
assignment to slim our board down; it was a big merger with Star Bank
in Cincinnati, and we were the company being taken over. I did it
mostly by convincing people to resign. Then Star Bank, which had
changed its name to First Star, acquired Mercantile Bank in St. Louis,
and we had to slim down again. I was co-chairman of the governance
committee. I felt that the best way this time was to put the decision
to the board of directors itself. The board had about 28 members. We
shed about six directors, and we did it by a popularity contest. There
were a few people who weren’t all that happy.
Finally
we were acquired by U.S. Bancorp. We had to do one more cut, and we did
that last one by age. A number of us were way over the limit. I was; by
this point, I was the oldest person on the board. So I handed the gavel
over to a colleague of mine. I wasn’t ready to go—I just thought that
was the only fair way to do it. By that time I had taken about 35
people off this board, and I was starting to feel
self-conscious.
Craig J. Duchossois, 57
President and CEO, Duchossois Industries, Elmhurst, Illinois
Blue Rhino, Churchill Downs, Trinity Industries
I’m
on several boards that do annual board-member evaluations, the same as
they do on the CEO. This is a simple but much-needed discipline that
all boards should practice. With such performance measurement,
directors know what’s expected and shouldn’t be surprised if they get
canned. Strong boards will self-police.
William H. Coquillette, 53
Partner, Jones Day Reavis & Pogue, Cleveland
Lampson & Sessions
There’s
a feeling on a board of being friends, and so it’s hard to make
objective decisions. The classic scenario is when a director gets older
and is not as effective as when he came on the board. The chairman’s
job is to manage that. The chairman has to go to the member and say,
“It’s time to step down.”
James E. Ousley, 56
President, CEO, and Director, Vytek Wireless, Minneapolis
ActivCard, Bell Microproducts, Datalink, Savvis Communications
I’m in the process right now of leading a nominating committee to replace two directors on one of my boards. It is difficult, particularly with early-investor board members who feel they were there when help was needed and are now being asked to move on. Here are the guidelines I follow: One, don’t put the burden on the CEO to deal with all this, even if it’s his recommendation to consider new members. Two, form an outside board-member nominating committee. Three, use an outside search firm to find new members for consideration; there’ll be no friendship ties. Four, put in term limits.
