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The Challenge in Parting Ways With Top Executives
"A CEO's job is much less stable than it was 10 or 20 years ago," said Steven N. Kaplan, a finance professor who studies corporate governance at the University of Chicago's Graduate School of Business. "One explanation is that boards are doing their jobs or they're doing their jobs more than they used to."
GTSI's board, plagued by a streak of money-losing quarters, began reevaluating its plans to improve the company's margins last year after its field of competitors got too crowded. The company replaced Young with Jim J. Leto in February. Young said at the time that "given the pressures on the board after a tough year, I think the board made the right decision."
The pressure at GTSI came in part from its struggle to scale back its core business of reselling technology to the government and become more of a service-oriented firm.
"Dendy's experience for the last 15 years that I've known him has been as a reseller," Leto, a GTSI director since 1996, said in February. "My experience base is almost in the exact sweet spot of where GTSI is headed."
Similar reasoning went into the decision on Huber, the Oregon-bred electrical engineer who founded Corvis, a maker of fiber optics equipment gear. Corvis, once based in Columbia, became one of the Washington area's most highly valued technology firms after it went public in 2000. But its customers dried up when the bottom dropped out of the telecommunications market.
The firm had acquired one of its customers, a telecommunications services company called Broadwing Corp., and later adopted its name, its business and more recently its Texas headquarters.
Huber "was a brilliant engineer, brilliant developer of new products and a very seasoned executive in the manufacturing world, but not so much in the services world," Broadwing board member Joseph R. Hardiman said. "We knew we needed someone with significant experience in that industry."
So at a regularly scheduled January board meeting at the Columbia office, the board reached its decision, with Huber's concurrence, to replace him, Hardiman said. Broadwing is now searching inside and out for a new leader.
"It was emotional for him and the board," Hardiman said. "When you've got that much of your life invested in a company, of course it's a hard decision to make."
Boards typically resist going public about a firing because of a "built-in bias" in the system, said Henry Hu, a law professor at the University of Texas at Austin.
"Because CEOs often have a lot of say-so on who gets to be on the board, there's often this kind of reluctance in effect to turn on the person that put you there," Hu said. "It's painful because you get to be part of a corporate family and you're asking board members to kind of ignore all that in terms of deciding what's best for shareholders."
One face-saving alternative is to push the chief executive to resign, hand over a severance package and extract a signed contract that requires the departing executive to keep quiet about the details of the exit. The strategy has become so routine that the public rarely gets an inside look at the mechanics of what happened. The goal is to downplay it all publicly so that investors stay calm, employees stay focused and customers stay loyal.