RECENT ARTICLES
15 July 2017
Gaming the system

29 April 2017
Proxy voters voice gruelling questions

25 March 2017
When directors choose their own rules

14 January 2017
Maintaining high standards in work places

19 November 2016
The curse of self-serving directors

VIEW FULL LIST >

WHEN A CEO IS A LOOSE CANNON

19 April 2014

A reputed multinational company (MNC) had a chief executive who not only talked more than she listened, but also refused to take any guidance or direction from the company’s board of directors.

The board comprised very senior independent directors; and they had gone through the usual route of hiring an executive director to run the MNC.

At first, the newly-hired executive director ran the company according to the strategies that the board had proposed. In fact, she did so for three years.

But in her fourth year, she asked to be re-designated as chief executive officer (CEO). Here is where the worm turned.

At this juncture, you may well ask: What is the difference, really, between being an executive director and being a CEO?

Well, the latter can act more independently of the board than an executive director. This difference is clearly set out in the MNC’s Articles of Association, or the rules, which structure the company.
The then governing board agreed to her re-designation. In the ensuing years, some board members were replaced by new ones.
Then, in her 10th year at the MNC, the CEO began to deal with the completely new board members differently. She started to dictate to them what the MNC should and should not do, and even rejected the new direction and strategies that they set forth.

Things went from bad to worse. The CEO would slam down the telephone on the chairman, who was only trying to relay the board’s views to her. The chairman’s practice was to call her every two weeks to update her on where the board thought that the MNC’s various committees were heading. Each of the board’s attempts to rein in the CEO failed.

Eventually, the board hired an executive coach for her, in the hope that he would improve the soured relationship and made it workable again.

But the CEO would not listen to the executive coach, and continued to ignore even the most basic don’ts from the board which included speaking at forums without the board’s prior approval, joining other non-profit boards without notifying the board and speaking to the media on the MNC’s strategic directions. The CEO had become a loose cannon, both externally as well as internally.

In true Western business fashion, the board refused to rehire her when her contract expired. The CEO was unceremoniously escorted out of her office, after having been ordered to pack her personal belongings in the presence of security officers. The company also locked down all her access to e-mail or electronic files pertaining to her work.

But she did not go down without a fight. She wrote to the MNC’s stakeholders, including its shareholders, alleging that the board was very hostile. These stakeholders then banded together to write an open letter to the board, protesting their apparent bullying of the CEO.

Fortunately for the board, one of the MNC’s largest shareholders decided to call its chairman ahead of releasing the public letter, and learnt that the board had actually gone to great lengths to guide the CEO and provide her with avenues to gain the board’s trust again.

It soon became clear to the company’s shareholders that the CEO had either been very manipulative or just had not heard anything that the board had told her year after year. She did not talk to, much less listen, to the board.

The new incoming chairman and board members had to spend more than three months convincing the MNC’s many shareholders that every attempt had been made to change the CEO’s attitude. In the end, everyone realised that the CEO had tried to make the company her fiefdom and was certain that the shareholders would support her regardless of what the board decided. Enough was enough – the MNC’s board and advisory board agreed unanimously to give the CEO the boot.

If any company or organisation is to be a success, it is imperative that its board and CEO work cohesively, in an atmosphere of openness and trust.

After all, they should ideally support and complement one another’s responsibilities and share a common focus – to take the company forward responsibly and profitably.

The board and the CEO are generally on the same side of the fence, but in situations like this, a board has to take re-group and make that needed executive decision, however drastic it may seem to be.




© CORSTON-SMITH ASSET MANAGEMENT SDN BHD 2014