By Stephen Robinson Tuesday, 20 November 2012

How to fall on your sword

Ever wonder what happens behind the scenes when a top director is forced - or rather, encouraged - to resign? Enployment lawyer Stephen Robinson has the gory details.

Few high profile board level departures are quite as awkward and painful as that of George Entwistle, the former BBC director general. He walked after a mauling on the Today programme inflicted by a member of his own staff, John Humphreys. Imagine that in your own business, if you can.
 
Most leaders who are required to exit do so via the traditional quick and quiet route:  a hushed-up farewell, with all concerned making statements through gritted teeth. After just 54 days in the post, Entwistle was never going to have that luxury, but his decision appeared to be driven by a desire to do the decent thing. How very old school.

The high profile business leader is presented as either 'falling on their sword', 'jumping before they are pushed' or 'catching a bullet' for some inexact mix of business and personal failure.
 
It's telling that those expressions conjure up images of a selfless act or doing the honourable thing in tough times. The reality of course is often completely different. It's actually very rare the leader will really want to go. Leaving is very much the last resort.

What the public never sees are the awkward conversations at board level and a slow realisation from the exiting leader that his choices are limited to a messy public spat with the business or a quiet agreeing of terms.
 
It tends to work like this: decision made by the board that the leader must go; severance terms offered; if accepted in principle a compromise agreement is drawn up. This document sets out the severance payments to be made, the mechanics and logistics of leaving and importantly for the business that the now ex-leader can't sue them. He or she must take independent legal advice to agree such terms. There are never usually formal performance management procedures followed for very senior executives. HR is in fact sometimes the last to know.
 
Is that really what's happening in our PLCs and large institutional businesses? Often, yes. Perhaps there's been a BBC-sized scandal which won't go away or profits have taken a battering and someone needs to go. Maybe the shareholders simply need a fresh face to restore market reputation. After all, every business' corporate failings are at the mercy of 24/7 media coverage and comment.

There was a sharp intake of public breath when days after George Entwistle's departure it became apparent he was walking away with a year's salary despite only being in the job a couple of months. Yes, that's probably a generous severance package these days but it won't be that far removed from what other exiting high profile business leaders may expect if they are on a year's notice.
 
Most senior executives will be contractually entitled to between six and 12 months notice of termination of their employment. It is extremely rare than once a decision is made to allow the leader to fall on the aforementioned sword, he or she would remain in the job and work through the notice period. So why agree such a long notice period if there was never any intention of working it? Keeping the senior executive out of the market on garden leave can be an attractive option or it simply reflects the fact a new job may take some time to obtain. Often it is to ensure that the business has room to negotiate an exit package and remove the risk of a claim.
 
Let's not kid ourselves, when a senior executive goes, it will be the rarest of honourable men or women who will make the first brave step. In reality, all that matters for the parties is how the market/public view the departure. If it looks better to portray the exit as voluntary, well you can be sure the implications have been planned in advance.


Stephen Robinson is an employment partner in the Manchester office of Laytons Solicitors

 

Picture: Businessman with sword from BigStockPhoto

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