Should the CEO Be Fired? That Depends

In the wake of multiple problems splashed across headlines worldwide, speculation has run rampant that Uber co-founder and CEO Travis Kalanick may be on his way out. Issues include claims of sexual harassment at the company, massive loss of users and even a widely circulated video of the billionaire getting in a fight with a driver over fares for black cars.

In an article on Mashable, 5 Ways to Save Uber From Itself, the number one suggestion to save the global company is to fire Kalanick. “If you cut off the head, the body can function … at least temporarily,” the writer claims. Other business analysts claim that while he was once the ride-sharing company’s biggest asset, he is now their biggest liability.

But is firing the CEO the best solution? I advise companies that the decision to fire a CEO is never a simple one and should not be done in haste. There are several factors to take into consideration. And firing a CEO can often set the company back, especially in a time of difficulty.

A recent article in Fast Company, “Why Uber Shouldn’t Fire Its Bad Boy CEO,” made the case that Uber may actually benefit from keeping Kalanick in the CEO’s chair.

The article references this article on the Harvard Business Review, “Holes at the Top: Why CEOs Firings Backfire,” which explains why CEOs are often swiftly shown the door when times are bad.

“When companies do well, their CEOs are showered with money, perks, and adulation. When they do poorly, they’re given the blame—and the boot.”

The writer, Margaret Wiersema, is a leader in corporate strategy and CEO replacement and succession. She studied all instances of CEO turnover for a period of two years and found most CEOs were replaced not by the board after careful thought and deliberation, but at the insistence of investors upset over returns.

She compared performance of the companies from two years before a dismissal to two years after, compared performance with industry averages and then compared the performance of companies whose CEOs had retired as opposed to those whose had been fired.

Wiersema came to the same conclusion that I have after decades of working with companies in turmoil. “Most companies perform no better – in terms of earnings or stock-price performance – after they dismiss their CEOs than they did in the years leading up to the dismissals. Worse, the organizational disruption created by rushed firings – particularly the bypassing of normal succession processes – can leave companies with deep and lasting scars. Far from being a silver bullet, the replacement of a CEO often amounts to little more than a self-inflicted wound.”

I’ve seen companies where CEOs were fired for far fewer infractions. For example, perhaps the CEO didn’t make the numbers for a year or two. The business was still profitable, but it was below expectations and not as profitable as projected. Those CEOs often get fired within 3-6 months, rarely leading to the increase in profits that was hoped for. As for Kalanick, while Uber may be in a public relations crisis, and thousands of users have protested conditions at the company by following the instructions on the social media hashtag #deleteuber, the company is still growing. The head of North American operations claimed growth during the first 10 weeks of 2017 was better than the first 10 weeks of 2016. So maybe he is here to stay. At least for now.

Firing a CEO is not an easy or simple decision and shouldn’t be rushed, especially if big changes are being made to turn a company around. Those changes can take time.

Ultimately, it’s up to the board of directors. They have to make the decision based on a number of factors. But more often than not, it pays to keep the CEO because he can be a part of the solution, even if he was originally perceived as part of the problem.

My book “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes,” is now available as an ebook.

You Can Fight Fraud. And Win.

We all know Smokey the Bear’s slogan. “Remember – only you can prevent forest fires.” You can use the same slogan for fraud: only you can prevent fraud in your company.

I couldn’t let National Fraud Awareness Month slip by without mentioning a major contributor to revenue loss for a company. In its 2016 Global Fraud Study, the Association of Certified Fraud Examiners (ACFE) reported that a typical organization loses 5% of its revenue in a given year as a result of fraud.

Let that sink in a minute – 5% of your total revenue. Billing schemes and check tampering pose the greatest risk. And here’s another thing to think about, the perpetrator’s level of authority is strongly correlated with the size of the fraud. The higher up the thief, the bigger the theft.

I have written extensively about fraud as it can severely damage a company, and can even cause it to fail. While you can’t prevent fraud 100 percent, you can lessen its effect on your business. Does your company have strong enough fraud prevention measures in place? Here are a few articles to get you started.

Best friends, grandmothers, partners, even church ladies – I’ve seen them all commit fraud. When it comes to protecting your assets, trust no one. Don’t ever think that you know someone well enough to say, “He would never do that.” Maybe not. But don’t find out the hard way.

Sadly, the same goes for family members. Just read about the sad case of Gladys Knight and her son and what he did to her poor chicken and waffles restaurants.

I once worked with a company where the younger brother was running the business and took a salary beyond the limits allowed by the corporate minutes. Unfortunately, the fraud was only discovered after Daddy died and the statute of limitations had run out.

Fraud can occur when you have three elements: pressure, opportunity and rationalization. Knowledge of the fraud triangle is the basis of any successful fraud-deterrence program.

To catch fraud early, you need to know what the red flags are. One of these is when an employee exhibits behavioral changes, undergoes a sudden change in lifestyle or has financial difficulties. Read the article for four other red flags you need to be on the alert for.

According to the ACFE, the most common way internal fraud is detected is by receiving a tip from someone. One of the things your company can do is set up an anonymous hotline for anyone to report suspected theft. Their numbers show that organizations that had one were much more likely to detect fraud than those that didn’t – 45.3% to 28.2%.

My book “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes,” is now available as an ebook.

5 Tips for Handling Crises

It made national headlines last week: Atlanta’s I-85 bridge collapsed. A three-mile stretch of highway, carrying 250,000 drivers a day through the middle of the city, was shut down after a massive fire caused a bridge to collapse.

Thousands of business owners were suddenly faced with a huge problem. How do they get their employees to work? What about delivery trucks? What about customers getting to their place of business? Businesses close to the collapse faced a worse crisis as access to their companies was compromised. Several businesses in the area are closed as they figure out what to do.

The I-85 bridge collapse in Atlanta caused a crisis for many metro-area businesses.

There were a lot of unknowns about the situation. But one thing is for certain – a city with massive traffic problems already was about to get a lot worse.

As a CEO or business owner, you may have thought through many contingencies and have a plan for what to do in certain circumstances. Maybe you have a bad-weather plan that covers managing your company for a week or two if conditions prevent people from driving to work. If you did have a plan on how to handle transportation issues in the event of a major artery being closed, congratulations!  You are ahead of the game.

For most people, however, a bridge collapse of this magnitude or some other unpredictable crisis falls into the “Expect the Unexpected” category. Here are a few tips on how to manage your company during a time of crisis.

  1. Don’t panic. Don’t stress yourself by imagining worse-case scenarios. Remind yourself you are capable of leading your company in good times and bad and you’ll figure out a way to manage this one as well. People take their cues from you and it’s important for you to remain calm in the face of any type of crisis. Manage your stress levels. When I deal with CEOS in a crisis situation, teaching them how to manage the stress in their lives is crucial to guiding them through a crisis.
  1. Correspond with employees, vendors and stakeholders as soon as possible. People don’t do well with uncertainty. Even if you don’t yet have a plan, reassure everyone that you are meeting with senior management and will be back in touch with your plan. Reassure them and convey a sense of calmness will let them know you are on top of the situation.
  1. Ask for your employees input. As part of gathering information to formulate a plan, it can be a good idea to ask your employees as well as senior management for any intel they may have about the particular situation. For the bridge collapse, asking for information people may have heard through their neighborhood associations about alternatives or finding out information about their access to public transportation can be helpful.
  1. Get creative. Consider all possibilities in the wake of a crisis. If ever there is a time for out-of-the-box thinking, it can be during a time of crisis. Some Atlanta companies have implemented staggered working hours for employees, added more options for telecommuting and are giving discounts to employees for monthly passes on public transportation. A rental car company that has an empty lot and is cut off from getting new inventory is thinking of sending new renters to the airport and compensating them accordingly.
  1. Pick one plan and stick to it. As I advise in my book, “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes,” when facing a crisis, pick one logical and reasonable plan and stick with it. Align everyone and everything in your company towards this goal and for this plan.

My book “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes,” is now available as an ebook.

Funny, But True: Two Cases of Too Many Zeroes

Fraud isn’t funny. But some of the failed attempts at fraud can be. Here are my nominations for two people who deserve at least an honorable mention for the Darwin Awards. Neither of their genes should be in the pool.

Like trying to cash a check for $360 billion. In 2008, a 21-year-old man in Texas went to a bank in Fort Worth with a check, claiming he needed the money to start a record company and his girlfriend’s mother had given him the check. That would have been enough money to buy just about any record company he wanted, along with all the rights to every Beatles, Michael Jackson and Elvis song ever recorded.

See anything suspicious about this check? (AP Photo/KXAS-TV)

But the tellers at the Fort Worth bank were just a bit suspicious of a check with 10 zeroes in the number. A call to the girlfriend’s mother confirmed that suspicion. She did not give him the check. My guess is she also did not have $360 billion sitting in an account. He was arrested on a forgery charge.

A woman in Georgia had a few less zeroes in mind when she filed a fake tax return, claiming an income of $99 million. She claimed she was due a refund of $94 million. Revenue agents wrote a fake check of their own, issued to Brigitte Jackson for $94,323,148 and told her to appear at a bank inside a supermarket to cash it.

Brigitte showed up, visions of riches in her head. But instead of leaving with the cash, she left in handcuffs, charged with attempted theft by taking and conspiracy to defraud the state.

While these instances are comical and easily spotted, most fraud is not and can go on for years, costing your business millions of dollars. The Association of Certified Fraud Examiners estimates the money lost by businesses at over $3.5 trillion a year.

In my years in the turnaround industry, I have seen dozens of cases of fraud, many of which caused owners to lose their businesses. It’s rarely this blatant, which means as a CEO or business owner, you have to be ever-vigilant.

March is National Fraud Prevention Month, a good time to access your businesses fraud prevention practices. Here are a few articles with tips on preventing fraud in your business:

 

 

March Madness Moments: Lessons from Winning Coaches

An estimated 81 million Americans will lose productive time at work because they are involved in that uniquely American pastime known as March Madness, resulting in a loss to American businesses of around $2 billion.

Go ahead and take a break from filling out those brackets to review a few quotes from some of the most winning coachs in the NCAA. When your employees do check back in to work, you’ll be ready and motivated.

Roy Williams, head coach at UNC since 2003, spends a lot of time during the basketball season recruiting for his next crop of players. While he doesn’t love the travel that entails as he darts off between games, he does watching the young men play. But when he recruits, he’s not just looking for talent. He is looking for character.

“When I decide that a kid has the talent I am looking for, then I try to find out about his character. I once had an elementary school principal in Wichita, Kansas, tell me, ‘Coach, I wish you’d say academics is the second priority.’ ‘No ma’am,’ I said. ‘because if he’s a great player and a 4.0 student but he’s going to be a pain in the rear end, I want it to be somebody else’s rear end.’”

Coach Williams also has great advice for dealing with critics and negativity that is equally adaptable for business owners. “If the mailman stopped to kick every dog that barked at him, he’d never deliver the mail,” he said.

Down the road a bit, his rival coach Mike Krzyzewski has been head coach at Duke since 1980 and racked up more than 1,000 wins. He shares something in common with Roy in that they both believe in knowing about the people they work with and those they coach.

“A common mistake among those who work in sports is spending a disproportional amount of time on ‘x’s and o’s’ as compared to time spent learning about people,” he said.

That’s a philosophy I follow in my work as the turnaround authority. When I go to lead a company, of course I look at the books and survey the entire financial picture of the business. But I also take time to talk to employees at every level to determine what’s working right, what’s not and how to leverage their skills, knowledge and talents. The employees of a company are one of its biggest assets, and it’s my job to learn all I can about that asset.

Coach K., as he’s called, has experienced plenty of losses as well. After a humiliating 109-66 defeat to Virginia in the ACC tournament in 1983, he was at a restaurant with a few friends. One offered a toast of sorts: “Here’s to a night let’s soon forget.” Coach K. lifted his glass and said, “Here’s to a night we will never forget.”

That doesn’t mean you have to dwell on your losses. But remember them. And learn from them.

The late John Wooden was head coach at UCLA, where he won ten NCAA national championships in a 12-year period, including a record seven in a row. He had several motivational quotes, many of which apply well to business leaders.

“A coach must never forget that he is a leader and not merely a person with authority,” is one that I keep in mind. And for their simple truth, I like, “Nothing will work unless you do,” and “Things turn out best for the people who make the best of the way things turn out.”

One of my favorite quotes is from the late coaching legend Dean Smith, who coached at UNC for 36 years. “If you make every game a life and death proposition, you’re going to have problems. For one thing, you’ll be dead a lot.” I remember that in times of extreme stress to try to put things into perspective.

That’s another thing Coach Smith did quite well, as player Peter Budko once recalled. “On the occasions when we didn’t win, he would tell us there were two billion people in China who didn’t care one bit about the outcome of our game. Perspective!”

Remember that perspective in a few weeks if your bracket doesn’t turn out so well. The two billion people in China don’t care about that either.

Funny, But True: Low-Tech Security Works, High-Tech Fails

Sometimes those “smart” houses aren’t so smart. Apple fan Marcus, a homeowner in Illinois, decided to outfit his home with every gadget available that claimed to be compatible with Apple HomeKit. His home had Hud LED lightbulbs, Ecobee thermostats with sensors through the home and an August Smart Lock. He could control the lighting, temperature and locks in his house with an app on his iPad.

Marcus enjoyed being able to walk up to his front door and having it unlock for him when his phone got within a certain range. He could let his dog walker in when he was not at home. When he was home, he could enlist his trusty assistant Siri to help him by giving commands like, “Hey Siri, dim the lights.”

Excited by these new fun features, (and thousands of dollars poorer), he invited his neighbor Mike to come over and check it out.

The Apple HomeKit is great, if you take certain precautions.

Then one morning as Marcus was leaving, Mike showed up and asked if he could borrow some flour. Marcus started to get out of the car to open the front door for him, when Mike said, “I’ll let myself in.” He walked right up to the door, and called out, “Hey Siri, unlock the front door.” The door unlocked.

So, what happened? His neighbor had figured out that if he called to Siri loudly enough through the door, she would hear him through the iPad Pro sitting inside and unlock the door. It worked. Marcus has since removed the August Smart Lock.

The story reminded me of when I installed my own security system at a company I was running. We were losing a lot of merchandise to theft through the back door of the warehouse. I needed a solution fast, so I put a “camera” next to each of the 10 doors. Actually, I just drilled a hole in the wall and fed a wire through it with a battery-operated red light right next to it. The camera and the wire didn’t go anywhere—and neither did my merchandise after that.

The camera functioned as a psychological theft deterrent that scared those who considered stealing. After reducing shrinkage, I had the money to upgrade the security and improve the inventory tag system.

My method worked for me in that particular case, but I know it wouldn’t have taken long for the thieves to catch on to my fake camera system. So, I don’t recommend it. But I can’t recommend the more expensive smart home system, either.

#1 Lesson for Leaders From the Academy Awards

It will undoubtedly be Hollywood’s most famous unscripted moment ever. In front of a worldwide audience of close to 33 million people, Warren Beatty and Faye Dunaway were handed the wrong envelope and presented the award for Best Picture to “La La Land” at the Academy Awards.

Except that movie wasn’t actually the winner of the Best Picture Academy Award, as we all now know. A partner with PricewaterhouseCooper had handed the stars the wrong envelope, a mistake that will follow him the rest of his life.

academy-awards

Jordan Horowitz demonstrating leadership when he stepped up to the microphone to correct the mistake at the Academy Awards.

In the midst of emotional acceptance speeches, producer of “La La Land” Jordan Horowitz learned of the mistake. He immediately stepped right up to the microphone and said, “There’s a mistake. Moonlight, you guys won best picture.” He stayed on stage during the resulting chaos and graciously said, “I’m gonna be really proud to hand this to my friends from ‘Moonlight.’”

The young producer is being heralded for his grace under pressure. He did what a good leader does under a stressful situation: he took charge and handled the problem.

In TV interviews afterwards, Jordan said, “My heart was a little broken, but it’s one of those things that just gets thrown at you. You can choose to lean into it or break away from it.”

In my career in the turnaround industry, I often deal with leaders in a crisis situation. Things do get thrown at them. They lost their number 2, their biggest customer went to a competitor, they can’t make their loan payments. Whatever it is, a business is going to face tough times.

I’ve seen a full range of responses from leaders in these situations. They may choose to be dishonest with their lenders, they may put their heads in the sand or they may continue blindly down the same path that put them in that position, hoping for a miracle.

The first step these leaders have to take is to face reality. They have to take a good luck at what the situation is so they can deal with it. Then a good leader has to take charge.

As Jordan said, “It happened really fast. Listen, I’m a producer. I gather things together and I change directions and I march things forward.”

In a nutshell, that’s what happens with CEOs. They gather the information they need, make decisions and march forward. Luckily, most leaders don’t have to do so on live TV in front of tens of millions of people.

Another company trying to march things forward right now is PricewaterhouseCooper, the second largest accounting firm in the world. The New York City-based company has overseen the Oscars balloting and presentation for 83 years, an association it takes great pride in and leverages with new and existing clients.

Tim Ryan, U.S. chairman and senior partner, was in the audience at the Academy Awards when the incident happened – that moment when two members of his firm came out of the wings and his business would soon move into the spotlight.

“I knew something was up,” he said in an article in the New York Times discussing the moment when he saw the two PwC employees interrupting the best picture acceptance speeches. “It’s not their job to come out on stage.”

The reviews for PwC’s performance that night came in and they were not good. Many people had comments along the lines of “You had one job.” Les Moonves, Chairman and CEO of CBS, said “If they were my accountant, I would fire them.”

PwC apologized for the error and took full responsibility. Monday night, 24 hours after the mistake, PwC issued a statement that read in part, “For the past 83 years, the Academy has entrusted PwC with the integrity of the awards process during the ceremony, and last night we failed the Academy.”

(Soon after, the firm placed the blame on partner Brian Cullinan, U.S. board chairman and managing partner for PwC’s Southern California practice. I was surprised that they singled out one of their employees so quickly, which shows a lack of support for a partner of their firm.)

What happens to Brian’s career, PwC’s reputation and whether they are around for year 84 of the Oscars remains to be seen.  Both leaders stepped forward to take charge. But while Jordan handled the crisis perfectly, Tim took responsibility for the mistake, but in doing so threw his partner under the bus – which is not the way to handle a crisis.