Dr. Earl R. Smith II

admin says:

21 Responses to “At what point in corporate growth should the Board of Directors assume the power to remove a member of senior management for poor performance?”
1.
January 22nd, 2008 at 9:29 pm e
Steven Meitzen, CLU wrote:
The first day they meet they should form a study group and with in 6 mths have a plan laid out for board approval.
2.
January 22nd, 2008 at 9:30 pm e
Vivienne Lim wrote:
IMHO, ideally, performance metrics should be established as a part of the long-term plan that is reassessed biennially or when significant industry change occurs. Succession planning, on the other hand, should be implicit, and go in line with the organization’s strategy for survival.
3.
January 22nd, 2008 at 9:32 pm e
Dave Alton wrote:
I think that there is two parts to the question here. Succession planning is key to any organizations future. If you are not developing the pipeline so to speak you could easily end up in trouble at the top.
As far as performance metrics I believe that the board should hold everyone in the senior management team to account and that the job goals and more importantly business goals are being executed in the way that the board (shareholders) expect to continue the growth of the organization.
Given the restrictions that SOX has on any corporate officer of the company I think it would not only be prudent but mandatory to develop both succession plans as well as performance plans for all top level executives as well as key staff.
4.
January 22nd, 2008 at 9:34 pm e
Corey James wrote:
All corporate performance metrics should be established as a part of the long-term plan, not short-term requirements for survival. It takes time to root and establish business. Time (being relative) can be calculated by the complexity of the task(s), geographic influence, past performances (being indicative of future performances) and measured accordingly and accurately by industry standards and study of the industry. Fiduciary responsibility can not and should never be confused or clouded by what is also the socially responsible thing to do. There are NO ethics in business. PERIOD! You either wake up each morning with ethics in life (personal and business) or you simply do not have ethics. All business metrics should be reassessed biennially or when significant or major industry change occurs. Succession planning, on the other hand, should be implicit, and be in direct line with an organization’s strategy for growth not simply the survival and existence of the company. After all, you are in business to compete with competitors, not just survive. The survival of the fit, are those willing to also put up substantial reasonable risk in pursuit of success. The impotent management and board of directors will many times equate money and the bottom line with success… it is these people that will fail in life and in business.
5.
January 22nd, 2008 at 9:35 pm e
Ralph Muse wrote:
I believe all boards should hold the CEO to strict performance metrics, and should review the CEO’s perform ace metrics for senior management.
Succession planning for a small (say a startup) maybe more of what I call the beer truck plan. For example who takes over as CEO if the CEO gets hit by a beer truck. One answer is to hire an interim CEO such as supplied by firms like Muse Consulting, to fill the gap while looking for the next long term CEO.
6.
January 22nd, 2008 at 9:37 pm e
Jason Seiden wrote:
At what point should the Board assume the power to remove a member of the senior mgmt team for poor performance? Such power is the Board’s upon its inception. How should the Board execute it’s responsibility? By firing the manager directly if the manager in question is the CEO, or by working through the CEO if it’s someone else. (I can imagine genuine disagreements in which a strong CEO would be overruled by the Board about a particular member of the team… however, even in these situations, the Board needs to honor the role of the CEO. If the CEO balks, well, then that’s a different story.
When should the Board insist on a succession committee and strict performance metrics? I’m not sure about the second part of this question… I think that makes the answer a big, fat, “it depends,” or possibly a bigger, fatter, “never.” Life at the top of an organization is rarely so clear so as to be able to be captured in a list of strict metrics. The numbers used a the top of the org (think revenues and profits) are already too broad to be able to clearly relate their cause and effect back to specific individuals’ actions in the time frames in which Boards are working. (Think of CEOs who get fired for non-performance because their 5 year plans are judged in year 2.) Trying to gauge a set of soft performance metrics, when hard performance metrics are already squishy, is supremely difficult. Moreover, it’s management’s job–not the Board’s–to monitor metrics… the Board should be far more strategic, and should be challenging the metrics used by asking tough questions about the assumptions that underpin them. By limiting itself to another list of numbers, the Board puts itself in a position whereby it may end up forgoing its strategic responsibilities and instead adopt the role of shadow management team. It’s not clear to me that this approach would be in the best interest of the shareholders. For a Board to be able to do what you are suggesting, would take a deep level of insight into the workings of the company, and it is not clear to me that many Boards are up to that challenge.
I’m sure some companies would benefit from that kind of hand holding… but to make a blanket statement that using strict #s to manage the succession process would be a good thing, and in the interest of all owners… I’m not comfortable with that.
This is a very sticky question, compounded by the political realities of Boards… I wish you the best in working through the issues you face. Thank you, too, for a tough question that has got me thinking…
7.
January 22nd, 2008 at 9:38 pm e
Manuela Voicila wrote:
I also will break your question(s) into two parts :
1. it is the indisputable duty of the Board to take action when senior management is not performing as expected – in all stages of a lifetime of a company;
2. while talking about succession plans – I guess that again the Board should be preoccupied by who are the talents in their respective companies and endorse therefore the talent management programs.
I guess the requirement is a must in both cases. The only difference I see here is : the larger the company, the more sophisticated the methods for evaluating talents. That’s all!
8.
January 22nd, 2008 at 9:40 pm e
Charles Bellavia wrote
First, the Board manages and evaluates the CEO. If the Board has concerns about a senior manager, the CEO addresses with the Board and the Board removes the CEO if they think he is not acting in the best interests of the company.
Second, it is the Board’s responsibility to personally know the executives reporting to the CEO and in many cases one level below that. This allows the executive team to take advantage of the expertise of the Board with the permission of the CEO. It , also allows the Board to evaluate who may be successors to the CEO. If the CEO leaves the company, it is imperative the Board already knows if it is promoting someone from inside or is going outside.
Third, the CEO and his team should be regularly presenting the long term strategic plan to the Board. If the Board agrees with the direction, they should be evacuating if they have the right CEO to execute the plan.
9.
January 22nd, 2008 at 9:42 pm e
Francis Bueb CPA, CITP wrote:
Your question addresses two distinct issues. In regards to succession planning, it is a board responsibility to address and management responsibility to implement. It is not unreasonable to insist on succession planning, specifically if the lack of succession planning is determined to be a control weakness. The mere fact that management will not keep their positions forever should also be reasonable justification.
Performance metrics are a reasonable component of management. Make sure that any metrics established don’t conflict with any employment agreements.
10.
January 22nd, 2008 at 9:43 pm e
Robert H. Hacker wrote:
With the exception of the CEO, the Board should not assume the responsibility to remove senior management. Other senior managers should be removed by CEO. If Board has identified and communicated on several occasions to CEO about a weak senior manager and no action is taken by CEO then it is probably time to change the CEO.
11.
January 22nd, 2008 at 9:44 pm e
Doug Hering wrote:
I see three factors here: growth stage, poor performance, and succession planning. Succession planning is slightly different because often the executive leaves voluntarily.
With regard to poor performance, I think that is somewhat independent of the growth stage. Some executives can manage and lead at all growth stages. Some can’t. So, I wouldn’t say a board should necessarily look at replacing an executive purely based on the state of growth.
This leads me to the third issue, which is poor performance. Poor performance by the executive must be addressed regardless of the stage. A leader must lead. That is what you pay the leader to do. The organization depends on it. Because of this the board needs to evaluate whether the executive can or cannot restore the leadership that he or she once demonstrated (hopefully demonstrated). Once the board makes this determination, the board must act. If the executive cannot lead the organization any longer (in this case, the next stage of growth), then the board must release the executive to do something else where he or she can succeed.
12.
January 22nd, 2008 at 9:45 pm e
Eugene Rembor, MBA wrote:
Exactly at the point in time when it’s recognized.
13.
January 22nd, 2008 at 9:47 pm e
Allen Laudenslager wrote:
The board should insist on the formation of a succession committee and strict performance metrics for members of the senior management team as soon in the corporations life cycle as the board can address the issue.
My point being that senior management should be held to the same performance standards as any other employee. A succession plan should be implemented as early as possible since the management oversight and strategic planing that is senior management’s job is critical to the companies success.
14.
January 22nd, 2008 at 9:48 pm e
Michael A. McMillan wrote:
Whenever they believe it is required, as they are accountable to the owners of the company. It should be part of measurements established and tracked from day 1. But there can be many other reasons to move someone out that go beyond the metrics. Importance is for any senior manager to have a good open 2 way relationship with the board. If you don’t have that relationship, then you don’t have the support you need to do your best and know when it is time for a change.
15.
January 22nd, 2008 at 9:49 pm e
James Penman wrote:
I’d break down your question into two answers.
First, answering the succession planning component. I believe that a succession plan should exist for every managerial-level position — from middle managers up to senior most executive level. I have seen whole companies fail because a key middle manager departed, leaving the company with an unrecoverable gap (gap in expertise or depart with key customer accounts). In a knowledge-base economy, talented middle managers are often MORE important that executives. And I include roles such as engineers, researchers, designers, scientists, manufacturing experts, product managers, and sales personnel in the category of middle management. In business continuity planning for any organization, succession planning and talent development should a fundamental, business-as-usual activity. And as such, the Board of Directors should oversee that a program of enterprise succession planning exists for the entire organization.
And next, answering the component of performance metrics. The C-level executives and Board of Directors, in my opinion, both have fiduciary responsibility for the formation and oversight of a company’s strategic direction and strategic goals. I believe absolute performance metrics (such as sales, revenues, expense controls, stock prices, market share, etc.) are one component of measuring an executive’s effectiveness. Also believe the competitive and industry benchmark comparisons are important. For example, the gold mining company’s stock might have been down 5% for the past year, but if other gold mining companies where down 10% for the same period, then no so bad for the one gold company
.
Strict performance metrics, in my opinion, should be paired with intangible assessments. There are many human performance factors which are difficult to quantify. including:
1. Credibility and trustworthiness
2. Charisma, salesmanship, and interpersonal skills
3. Over the horizon vision (ability correlating industry trends to business opportunities)
4. Drive, determination, and energy
5. Team building and effective hiring and firing.
To finish your question, the Board of Directors has a duty to insure that a company’s executives are “effective” and represent the best interest of the shareholders. The definition of what is considered “effective” should be the first and primary decision that the Board of Directors makes.
I continue to enjoy your questions. Please keep them coming!
16.
January 22nd, 2008 at 9:51 pm e
Nic Hawkins wrote:
Personally I think that performance metrics should be in place and managed to from day one of a company’s life at all levels. It is then the job of the board to hold senior management to these metrics and challenge their performance. If they don’t do this what are they there for? If there are no metrics in place how are they meant to know if senior managers are doing a good job or not? The directors’ job is too important to take CXO reports at face value or trust to qualitative or anecdotal evidence that things are happening. Metrics don’t mean micromanagement or bureaucracy, they just mean objective reporting of focussed numbers that can be directly linked to company performance, and used as a basis for further investigation when needed.
That being said, those objective measures will change throughout the life of the company as different areas of business become more and less important, from getting the message out, to exploiting market growth, to developing new products as existing offerings mature. Succession management at a senior level would not necessarily be an issue in early stage companies, but development of future leadership has to get onto the list at some point (and junior staff should be being developed from a very early stage). Exactly when depends on the existing leadership, and how their abilities mesh with the company status and direction. We all know stories of companies outgrowing the entrepreneurs who started them. Likewise there are plenty of successful leaders out there who have been in charge throughout the comany’s life. There is no one model that will fit all.
The important thing from the directors’ point of view should surely be a clear and honest vision of where the owners of the company want it to go, splitting this down into the critical drivers of attaining that goal, and keeping management on track in performing to those drivers. It’s the same as how senior managers should be managing their reportees, no more and no less, with the only difference being in the specific measures used. Directors are managers after all, not policemen – they need to be more proactive than that. At a higher level, its true, but they are paid to do a job, and to try to do it without objective reporting is in my opinion not serving shareholders as well as they deserve.
Every day I pick up the newspaper and read about inappropriate remuneration, bonuses paid without associated company performance, companies losing the plot and the CEO being sacked after protracted under performance. I wonder sometimes what these boards have been doing in return for their paychecks. The answer has to be at least in part that some boards have forgotten their obligations to shareholders and act as an extension of the executive rather than their managers and challengers. Post SOX, there shouldn’t be overlaps, or even too close a relationship between the board and executive, too many times it has been shown that executives need to be effectively managed.
17.
January 22nd, 2008 at 9:52 pm e
Jaideep Khanduja wrote:
First of all a board is not only supposed in this case to assume power and take action but to analyze first what went wrong that a non performing person became a member of senior management. Or there could be another case where a very good performing senior management member could turn out into a non performer due to some reasons. In both cases board of directors are to brain storm in cleaning their filters and leakages to ensure that further there will be no non performers put as a member of senior management and in the 2nd case will find out the solution to turn back the non performer to a performer or give him some space, air and time to get back to his/her excellence by overcoming the factors affecting his/her performance.
18.
January 22nd, 2008 at 9:56 pm e
Juha Harkonen wrote:
The board should never act past the CEO in firing a senior member of staff. If the board has strong concerns and the CEO is not willing to act then the board must decide on the CEO.
19.
January 23rd, 2008 at 4:50 pm e
Ian Fountain wrote:
From day 1 there should be clear and challenging success metrics.
No one person is more responsible to the success or failure of a company than the CEO. If he or she is not focused and continues to receive annual bonuses that do not relate to the financial gains or losses, then you have already lost the competitive edge needed to survive
For this reason the metrics must be in place from day 1.
Then a clear set of rules for everyone can be established.
Usually I would insist on a 3 strikes and your out type of policy.
3 quarters, 3 halves, 3 years depending on the dynamic of the company and the level of impact that CEO must make.
Once this has been created for the CEO it is very simple to apply similar metrics and criteria to the CFO, COO etc.
But note, this should also be true for the board of directors. They should be constantly advising the comapny on how to succeed and looking at the market to ensure that through their knowledge the company is steered towards success. This unfortunately is not always the case and the board of directors should also have some responsibilities that they should be measured against
20.
January 24th, 2008 at 8:34 pm e
Michael Adams wrote:
The Board of Directors has the power to remove a member of senior management anytime. The BOD is responsible for protecting the stockholders interest and managing (GRC) corporate governance, risk management and regulatory compliance.
We at BoardMemberServices.com provides board assessment services that evaluate directors and executives.
There are several good organizations that I have had the pleasure of working with in the past that provides excellent information on these types of questions. Society of Corporate Secretaries and Governance Professionals http://www.governanceprofessioals.org, Canadian Society of Corporate Secretaries http://www.cscs.org and Open Compliance and Ethics Group. http://www.oceg.org
21. Pete Zawadzki Says:
January 24th, 2008 at 11:05 pm e
Voting out the CEO is perhaps the Board Of Directors greatest power. It’s neglect not to have a succession plan, even if it is not formalized. Succession planing may just lead to executing an M&A exit strategy. So the two have to be considered at the same time.