CEOs sacked for conduct don't deserve severance pay

This blogger has been fascinated with lululemon for some time. The Vancouver based company has been peddling fashion wear for yoga and been successful at it. Firstly this blogger is amazed that you have fashion wear for yoga. Secondly, can a company really be named lululemon ? And spelt without a capital L ? There was also the business of yoga pants that, er, revealed too much, a few years ago. With that sort of pedigree, it is a "must follow" company !

(Wunder Under Hi-Rise 7/8 Tight Full-On Luxtreme 25" for $98.00 USD - Note the price !)

They are in the news again. They fired their CEO yesterday. The gobbledygook announcement they put out said "lululemon expects all employees to exemplify the highest levels of integrity and respect for one another, and Mr. Potdevin fell short of these standards of conduct." In plain English, the Board fired him. He did something wrong, relating to employees, and they fired him. Plain and simple. Nothing earth shattering about that - CEOs are fired for a variety of reasons and this happens all the time. But clearly he was fired, not for poor performance, but for something he should not have done with employee(s), but did. We should not speculate further.

So far nothing spectacular. But what got my goat was also the statement in the announcement that "Potdevin will receive a cash payment of $5 million, including $3.35 million upfront and an additional $1.65m over the next 18 months, according to a separation agreement filed with the Securities and Exchange Commission." This is outrageous. He's guilty of misconduct and you pay him $5 million ? I'm gobsmacked. Yes, there must have been a separation payment in his employment contract. That's standard in almost all CEO contracts. Why CEOs - any employee's contract. You have to be paid a severance pay (however measly it may be) if you are fired.

But this guy is being fired for wrong conduct. Would any low level employee guilty of the same conduct as Mr Potdevin ever be paid a severance pay ? No chance ? Then why should he be paid simply because he was the CEO. If there was an iron clad clause in his contract that said he would be paid no matter what the reasons for firing are, then the guys who drafted such a contract must be fired and made to pay a fine equal to this severance pay.

This sort of action is why companies are hated by the general public. Any corporate action must not only be fair, but be seen to be fair. The Board of lululemon deserves to be fried , roasted and hauled over coals. It is a listed company. What are the shareholders doing ?

CEOs are exactly the same as any other employee of a company. I have no problem with them being paid handsomely for the work they do. But they should not be paid for conduct that necessitates a firing.

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The awfulness of PC

No; not P.Chidambaram , the outgoing Finance Minister of India. The PC I refer to is Political Correctness. I have a healthy disdain for politically correct expressions, usually the pet infatuation of the Left.  But what happened in Mozilla, the company which puts out the Firefox browser, is nothing short of outrageous.

What happened was this. Brendon Eich was appointed CEO of Mozilla. Within 10 days he resigned. Or rather was forced to resign. Why ? Because there was a backlash against his contributing $1000 to a campaign in 2008 on a referendum on gay marriage in California . He donated to the campaign that sought to ban gay marriage. The donation was made 6 years ago. The "Mozilla community" objected to a guy who was anti gay marriage being the CEO. So he had to go.

This is political correctness at its worst . There is absolutely no merit in sacking him, or if you would like it "creating conditions that led him to resign". Consider the following arguments

• The matter had nothing to do with his qualifications, experience or performance as CEO of Mozilla
• In fact it had nothing to do with Mozilla at all and it was a private act by him. As far as I know, making a campaign contribution, even though the stance may not be to everybody's liking is not a violation of the law in the US.
• He is not evangelising or actively lobbying for ban on gay marriage. All he did was make a donation to a campaign that reflects his personal views.
• There is zero evidence that he would not treat gays equally in the company . If a law was enacted allowing gay marriage,  and if he then discriminated against gay couples, then he is performing a criminal act and will be prosecuted. There is not even an accusation that he proposed to do anything like that
• The issue of gay marriage is not by any means a settled one in the US - this is a thorny social issue and there are lots of opinions for and against. The issue is coming up repeatedly in the Supreme Court. This is not an issue like say Nazism or Al Qaedaism where there is a near unanimous opinion.
• Brendon Eich has never said (nor is he even being accused) that he is anti gay. He is only against gay marriage. There is not a shred of evidence that he has discriminated against gays in his career.
• He is perfectly entitled to his personal opinion as long as he follows the law of the land and does not let a personal opinion be to the detriment of the company.

It is none of anybody's business, especially that of the Mozilla Board, to be dictating to anybody what his  opinion on non business matters should be . Companies should not be espousing for or against social issues. That is none of their business. They should simply follow the law . Social issues ought to be debated and pushed by individual citizens and enacted by elected representatives. Encouraging companies to lobby on behalf of social issues is the most dangerous step any society can take - look at the mayhem that political contributions by companies is causing in the US.

It is a crying shame that Brendon Eich has been forced out  by a bunch of PC obsessed fanatics. I may not agree with Eich's views, but I absolutely defend his right to have them. Isn't that what the definition of freedom is ?

Shame on you Mozilla.

Full Disclosure : This blogger is a dedicated user of Firefox and is considering abandoning that product !

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"Lala" Infosys

Infosys was , is , and will be a great company. Unarguably. But even great organisations suffer from malaise. Surprisingly, Infosys suffers from the malaise that you would not normally attribute to it - the Lala problem. Yes, I know, I am throwing mud at a great company, but you have to expect it if you lose 20% of your market value in one day.

Wait a minute. Isn't Infosys one of the most professional of companies ? A company that sets the standard for corporate governance. The company that raised the bar on ethical business. The company with the middle class values ? All true. But Infosys suffers from the same problem that family run companies have - the company is handed down from one  "family" man to another.

Only in Infosys' case, the "family" is not blood related, but the group of founders who set up Infosys. The peerless Narayana Murthy established it. The relentless Nandan Nilekani drove it to the status of a world leader. Kris Gopalakrishnan then took up the baton and reaped the boom years. And then , just like in a family,  the company was handed over from brother to brother, to Shibulal, the last of the founders. And as we all know, second and third generation families are never the same as the first generation.

In all this, quite a few senior managers stepped away, knowing they had reached the end of the road - not just that they could never lead the company, but that in the set way of things, they had done all that they could.

Infosys is not known in the market as a great company to work for. This, despite its undoubted brilliance, its strong values, its untarnished reputation and its incredibly strong balance sheet.  It simply does not attract the best quality talent that a leader in the industry should. And it loses talent far faster.

Calling it a "Lala company" is an insult to a great institution. But a staunch admirer of the company, and its founders that I am , I am usurping the right to be unfair.  A classic response of an organisation that is in the situation that Infosys is in now, would be to make an acquisition - especially since there is a mountain of cash burning a hole in its pocket. If its does that, it surely is then a Lala company. For that's what Lalas do.

Infosys will bounce back. It is suffering from the middle age blues - as all of us in our personal lives do too. It has reached middle age perhaps a little earlier than its peers - even in that it is a trail blazer. But its bounce will be faster if the founders leave. Lock their doors and go.

Its time for Infosys Gen 2 to emerge. One where there are no more "Lalas". 

An unfair post this one. For sure.  But you are only unfair to somebody you admire.

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CEO for 20 minutes

How would you like to be CEO for 20 minutes ? No this is not one of those employee motivation exercises, nor is it a joke. This is all too real.  That's precisely what happened to Bill Johnson the CEO designate of Duke Energy.

All this arose from a merger between Duke and Progress, two giant utility companies in the US. It is now the largest electric utility in the US. As is typical in such merger of giants, the CEO of Duke was to become the Chairman of the combined entity and the CEO of Progress, Bill Johnson, was to become the CEO of the combined entity. Regulatory and shareholder permissions were sought , and received. All very good. On 27th June, Bill Johnson signed his new employment contract and  that was that.

The merger was consummated at 4.00 PM on Monday 2nd July. Immediately thereafter the new Board met and sacked Bill Johnson. At 4.20 PM Johnson resigned - he resigned rather than refusing to do so, as he was getting a $10m settlement that way. CEO for 20 minutes.

This is not a tin pot company, nor is the Board a bunch of jokers (although you have to rethink that now). Both the companies are giants in their own right and the combined entity is a behemoth. And yet, did they seriously believe that they would get away with this sort of behaviour? Did they expect the regulators and the shareholders to keep quiet. Even a moron can see that this is probably the worst move that you can make.

Mergers and acquisitions are notoriously difficult to implement. More go wrong than right. But if you start off like this, what chance do you have of any success ?

The future is all too predictable. The Board will defend for 3 days that all was right. Public and regulatory outcry will build up. Then the Chairman will resign. As will a few more Board members, if not all. A new CEO will be appointed. More turmoil. And the acquisition will steadily go downhill. Two years from now, Progress will be divested at one tenth the acquisition value.

It boggles the mind how corporations can monkey around like this. They seem to be their own worst enemies.

PS. Since all this drama is happening in Gils's current hometown,  perhaps, the esteemed blogger might pen a first hand account in the comments section :)

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Corporate Japan at its worst

In the good old days when I was in business school, Japan could do no wrong. A million books were written on the Japanese style of management. America was bust, Japan was everything. Case after case taught at business school was on how gloriously managed Japanese businesses were. At that time the two words we were thoroughly sick of was Japan and Walmart ! Time has since proved that there is a fair bit to admire about Japanese management, but a lot that is thoroughly rotten.

A great example is what happened at Olympus last week. This is the company that makes cameras.They just fired Michael Woodford, their CEO, and a 30 year company veteran, two weeks after elevating him. They were brave enough to appoint a non Japanese as their CEO, one of a handful of Japanese companies to do so and foolish enough to sack him immediately. His crime - he didn't listen to the Chairman Kikukawa san and started probing into the financial skulduggery that seems to have gone on.

The skulduggery relates to the acquisition of Gyrus, made in 2008. The acquisition was for $2 bn. Olympus then made payments for advisory fees of $687 m to two virtually unknown firms. Nobody can trace who the owners of these two companies are. One of them, registered in the Cayman islands has since disappeared off the registry 3 months after receiving the last payment from Olympus. These payments were not disclosed to shareholders - instead they were hidden in goodwill by adding to the acquisition price. Now, who on earth pays advisers fees of $687 million for a $2 bn acquisition ?? Not even Wall Street is that greedy.

KPMG, their auditors disagreed with all this accounting wizardy and were promptly sacked for their endeavours.

Woodford started to enquire into this and was told to shut up and look elsewhere. His crime was that he did not listen.

Woodford was summoned to a Board meeting were he was told to zip his mouth and not speak. The solemn directors then proceeded to fire him. The function of the board, alas all too often in Japan, is to bow one inch lower than the Chairman. So much for corporate governance.

The rigidity of hierarchy in Japanese corporate life survives to this day, Grovel and obey without question. I am still amazed how they managed innovation with that culture. I am sometimes inclined to credit some divine providence for all the wonderful innovation in product and quality systems that came out of Japan. How else can you explain  that coming out of a Stalinist corporate culture.

The only lot who are thoroughly unimpressed by all this is the Japanese investor. He has cheerily driven down Olympus' share price by 24%. Kikukawa san and his deputy Mori san may still have to fall on their sword soon.

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Who or what is a Doofus ?

I freely admit to not having a clue about what a "doofus" was, until today, if you will pardon the pun. For, apparently, a doofus is a guy who doesn't have a clue. My vocabulary has since improved by one, thanks to Carol Bartz, the ousted CEO of Yahoo  who called her Board which ousted her, a bunch of doofuses.

Everything about the Yahoo saga stinks. Carol Bartz was fired by her Chairman over the phone. It has brought into question again how firings are done. Not just firing a CEO, but firing any employee. Firing by phone or by email must surely rank as one of the worst blunders you can make in a company. Topped only by having a security guard present and showing the employee to the door. Employees deserve to be told in person that they are fired and also told the reason why they are fired. The reason may have nothing to do with their performance - we are making losses and have to cut costs and you got the short end of the straw, is perfectly acceptable if that is the honest truth. If the employee is surprised that he or she is being fired, then clearly the boss hasn't done his job. Firings are rarely required overnight. You can see it coming and its the boss's job to be open and forthright in communication with the employee. The Board of Yahoo displayed appalling behaviour in firing Carol Bartz over the phone.

Carol hasn't covered herself with glory either. In her now famous mail to employees, she wrote "I am very sad to tell you that I’ve just been fired over the phone by Yahoo’s Chairman of the Board". She then proceeded to give an interview to Fortune where she has contributed to the increase in the vocabulary of bloggers like me. She also apparently said that " they  f---ed me over". She is going to collect a $10m severance pay but she may have put that in jeopardy because the severance agreement has the usual non disparagement clause (you don't throw garbage at the company, in lay man terms)

Then a pompous know it all (correction - rich pompous know it all) called Daniel Loeb who runs a hedge fund and has taken a stake in Yahoo writes a public letter asking for the Chairman of the Board to go and then naming a few directors who in his opinion have to go too. 

Excellent. With such worthy managers, Board and investors, what chance do the employees of Yahoo have. I am a regular user of Yahoo and its quite good at some of the things it does. But what a mess. Which sensible guy will now be willing to be the CEO. Probably only a guy who has some familiarity with doofusism !

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The succession at Deutsche Bank

Does nationality still play a major part in deciding who should become the Chairman or Chief Executive of the company. It shouldn't, right? But of course it does. Except, to its eternal credit, in the United States of America. A country pretty much devoted to meritocracy and where, by and large, only merit counts. It doesn't matter where you are from or whether you are white or black or yellow or grey or blue. Perhaps to a large extent in the United Kingdom as well. But that's it. Everywhere else, it seems only a local can be a boss.

Consider the succession saga at the mighty Deutsche Bank in Germany. The current CEO, Josef Ackermann is expected to be kicked upstairs to the Supervisory Board. A new CEO is to be appointed. There is general consensus that the best candidate is Anshuman Jain. The problem is that he is Indian, not German. And to add insult to injury, he reportedly does not speak much German either.

This apparently won't do as the boss of Deutsche Bank will have to have "close contact with Germany's political and business elite" whatever that means. Yes we know what it means. Cosying up to the power lobbies and doing backroom deals. Is that how business really ought to be run ??

Yes, I know Deutsche Bank is very German and very special to Germany. But it might have esaped attention that the bank is now a truly global bank. It has some 100,000 employees and operates in 70+ countries. Its listed in Frankfurt and New York. For such a bank, the best man ought to lead it. The best man means the man who will run the bank the best and maximise the returns to its shareholders. Not the man who can wink wink, nod nod with politicians.

Of course, that's Utopian thinking. On Tuesday, the bank is most likely to announce co CEOs - with Anshu Jain running the bank and Juergen Fitschen presumably maintaining the "close contact". Nice compromise and life goes on. And this is exactly the sort of a thing what would happen in France or Japan or China or India.

Now do we understand why Amercian business is where it is. The Chairman of Coca Cola was born in Turkey. The Chairman of Pepsico was born in India. The Chairman of Colgate Palmolive is British. The CEO of Citigroup was born in India. The CEO of Alcoa is German. Senior and middle management in US companies is like the United Nations.

Meritocracy is not just the best policy. It should be the only policy.

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Don't sack the CEO !

What would you say to a job that was one of the riskier jobs in the world – the chances of being sacked is high, and its very unlikely that you would survive 10 years. Not appealing, is it ? Welcome to the job titled the CEO.

In the UK, the FTSE 100 is the index that covers the top 100 listed companies. As the decade ended, only 16 of the CEOs who were there in 2000, were still there in 2010.

Heading that list is an illustrious name, Sir Martin Sorrell, the Chief of WPP, the global advertising agency. 25 years as CEO; he was the founder of the agency and still its head. And there are a few legends – Sir Terry Leahy, the boss of Tesco, Sir John Rose, the chief of Rolls Royce and only one lady – Marjorie Scardino, the head of Pearsons. But otherwise, most CEOs who were there in 2000 have got the boot.

The job of a Chief Executive, is obviously a crucial one in any company. The leader must stay for a reasonably long term, to be able to provide a meaningful direction for the company. Often the contribution of a CEO can only be seen in the longish term. An ideal tenure would be for 8 years or so.

But the capitalist system, as we have evolved it, is incredibly short term focused. Next quarter is all that seems to matter. Boards and shareholders expect instant performance from the CEOs, preferably in two quarters. If by three quarters the share price hasn’t doubled, then sack the CEO. The same story repeats with the new guy.

There must be something wrong with expectations if 84% of the CEOs fail to last the desired term. Sure, results are important, but how can the corporate sector be termed as successful if three quarters of the leaders aren’t considered to be doing their job.

Ok, the inference is a bit misleading. Some of the CEOs retired. Some of them might have done their stint, even if it didn’t coincide with the neat chronological span of the decade. And why 10 years - why not 7 or 8 ? But still, you get the drift.

There’s something that can be learnt from the survivors. More than half the survivors were founders. But even after they no longer owned the company and had very small holdings, they were still valuable to the company. And the professionals, all had long stints in the company before they became CEOs. Glamorous CEOs brought from the outside, have rarely survived long enough. There’s one company that has recently taken a fashion to only considering outsiders, on the presumption that every insider is a fossilized dinosaur. It might want to, sort of, look around it.

Its all a completely different story is Asia, usually. You have to carry the senile old man, kicking and protesting out of the door. That's almost as bad as the other extreme in the Anglo Saxon world. For once, a middle path seems most appealing.

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The "different" Brenda Barnes

Financial Times recently published its list of the top 50 women in world business. The usual toppers were all there – Indra Nooyi (Pepsico), Andrea Jung (Avon), Irene Rosenfeld ( Kraft), the highly controversial Ho Ching (Temasek – as our Singaporean friends will know). At No 14 stood Brenda Barnes, Chairman and CEO of Sara Lee, the makers of Kiwi shoe care, Douwe Egberts & Senseo coffee, Hillshire Farm meat, Good Knight mosquito coils and a whole host of famous brands.

She’s a lady with a difference. And her story merits telling.

In 1997, she was president of Pepsico North America. One of the top jobs in Pepsi. A glittering career. She would have surely risen even higher. But then she turned her back on the job and walked out. To spend time with her family – her three kids - and be a fulltime mom.

Seven years later she came back. Sara Lee hired her. A year later she was Chairman and CEO. Consider this for a moment – the upper echelons of corporate America is a dog eat dog world. If you step off, its even harder to come back than in lower or middle level positions. And yet she did . Any working mom, or dad for that matter, wondering if a career break will end working life need only look at Brenda Barnes' journey

Click here for an interesting interview she gave on her taking that career break. She says she sees life as a series of chapters. She says the time she took out was like going to graduate school.

Sara Lee even launched a paid internship program, dubbed returnships at Sara Lee, targeting professionals with a gap in employment.

The corporate world is not kind to people with career gaps. It’s the women who bear the brunt of this, when they are juggling with starting a family and continuing an aggressive career. This is particularly a serious issue in India. The demands of corporate life are such that balancing work and family life is virtually impossible. Something has to give. And many women, to their eternal credit, refuse to sacrifice the family. And end up sacrificing their career.

To all ye women, who made the right choice for your family. Brenda Barnes is your inspiration. The corporate world will, and must, change.

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Where should a CEO live ?

These days many companies are global. Does it matter where they are based ? Or where their top executives live ? I believe it does.

This post is prompted by the news that HSBC’s Chief Executive, Michael Geoghegan, will relocate from London to Hong Kong. This is a consequence of the fact that the future of the bank will more and more be in China.

In most companies, there is a corporate headquarters. Usually this is a historic accident – the headquarters are where the company originated from , even though its current business may be in completely different places. The CEO and most of the senior management reside in HQ. Sure they travel a lot. But they live in the base.

In the past, this made sense. The top team had to be physically together. Meet often. It doesn’t make sense today. It is much more practical to meet personally at regular intervals , but meet often virtually. That’s the way most companies are run anyway.

Its important for the top team to understand the countries which are most crucial for its operations. And real understanding does not come from travel alone. It often comes from living there. A CEO’s visit to any country is a carefully orchestrated event that gets him to places and see things that everybody wants him to see. There’s no way you can understand China, by alighting at Pudong airport, driving to the Shangri La, having a zillion presentations at the office, meeting two senior government officials, having dinner at the Yongfoo Elite and going back. However many times you do this, you won’t “understand” China.

For a truly global company, its top team must be spread over the major markets it operates in. The major geographies where its operations are. In the last team I was associated with, the top leaders were based in France, Germany, the UK, the US and China. It resulted in some arduous travel, but it achieved an important objective – it was a truly global team.

Its entirely appropriate that the CEO of HSBC resides in Hong Kong. After all its one of those rare “countries” where a commercial bank issues the local currency notes. HSBC issues most of the dollar notes in Hong Kong and one of its employees signs it. In the future the CEO might want to sign them himself. After all how many CEOs can have the satisfaction of taking his wallet out and seeing his signature every time he hands over a dollar bill. It must be the ultimate status symbol.

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A CEO with a head and a heart

Paul Levy is the CEO of Beth Israel Deaconess Medical Center in Boston. Just like everybody else, the hospital is hurting from the downturn. Things came to a stage where they had to shed 600 jobs. Ouch ! But nothing special - this is what every organisation is going through.

But Paul Levy's reaction was different. He called a town hall meeting. What happened in that meeting was something different. Read about it here in Kevin Cullen's excellent report in the Boston Globe.

Paul Levy could not bear to let 600 of his technicians, secretaries, administrators, therapists, nurses, the people who are the heart and soul of any hospital, go without a fight. He knew they would hurt and so would their families. Getting another job today would be impossible for most. But ,equally, he could not just do nothing. So he enlisted the whole hospital to join the fight.

Find savings. The better paid employees would sacrifice a little to enable the others have a job. People would take pay cuts. The whole hospital has come together as one. From the most junior person to the CEO. They'll cut costs. They'll all share the pain. But they won't let a fellow worker lose her job, without giving it everything they've got.

Thus far, they have found savings to retain 450 jobs. One week to go and another 150 to be saved.

Paul Levy is a regular blogger. Click here to read his blog. Its a great read.

Readers of this blog would know that I am a strong advocate of job losses being the absolute last option. I have posted before on this - click here to read the post.

The Beth Israel Deaconess Medical center is a place with a fantastic team spirit. Its because Paul Levy and his team have demonstrated that hey have a head for business and a heart for the people they touch. I would be proud to work for such a place.

Won't you ?

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