How To Fire a CEO

SMITH BRAIN TRUST – In what was a quiet shock, Barnes & Noble Inc. announced last week that its chief executive Demos Parneros had been fired without severance and summarily removed from the company’s board.

It was stunning – a kind of corporate whiplash.

The company offered only a sparsely worded statement, saying the 14-month CEO had violated company policy – it didn’t specify which – and would leave the ailing bookseller, effective immediately. Parneros was the company’s fourth CEO in about as many years.

What happens next at the New York-based Barnes & Noble, the Smith School’s Cynthia Kay Stevens says, can make the difference between an isolated surprise and a larger morale problem. And, she says, much of it comes down to communication.

“Anytime an organization fires somebody, it sends a signal – intended or not,” says Stevens, associate professor of management and organization at the University of Maryland’s Robert H. Smith School of Business.

Companies are limited in what they can say publicly about personnel decisions, but saying nothing typically gives rise to intense internal speculation about what happened and why. “The mere fact that Barnes & Noble did fire the CEO – and for violation of some company policy – sends an important signal internally,” says Stevens. 

Employees lower in the hierarchy often feel that those at the top have all the power and can do what they want with impunity, Stevens says. “And sometimes that does happen. But when a company does take the step of firing a leader, it sends a signal to those lower in the hierarchy that says, ‘We do take following the rules very seriously.’ ”

Many employees will conclude, however, that that’s only part of the story. They’ll go looking for additional reasons, discussing these with other people. “When the reasons for a personnel move aren’t explicitly stated – and sometimes even when they are – employees will come up with their own stories, their own theories, about what happened to make their work situation more predictable and more understandable,” Stevens says.

Of course, the first concern most employees have when someone is ousted is whether it might be the start of a massive staff overhaul. We’re all invested in our jobs and our paychecks.

From a human resources standpoint, she says, it’s helpful for companies to send a staff-wide memo or hold all-staff meetings, offering information and answering questions, as a way of allaying fears and blunting weeks of unproductive speculation. “A lot of what we do in organizations is symbolic, so taking the time to talk to employees about their concerns and fears has a lot of symbolic value,” Stevens says.

Although company officials are limited in what they can reveal about personnel matters, they can still emphasize that the leader was terminated for cause, remind employees that the company holds all personnel information to be strictly confidential, and reaffirm the company’s values or particular aspects of the company culture. “You don’t want to set off a new round of speculation, but I think it’s important to fill in that void for people, as a stopgap for inventing wacky reasons,” Stevens says.

Research shows that in the absence of information about surprising outcomes, people naturally begin to fill in blanks, generating their own ideas about why things happened. “People are sense-making beings,” she says.  And the reasons they invent are often a bit paranoid, as a method of self-protection.

When employees see someone they like or who performs well at the office get fired, they begin to question whether they too might soon be fired. “And that’s unsettling,” Stevens says. But if they can come up with a story about the personnel change, an explanation that theoretically distances them from the probability of getting the next pink slip, it makes the work situation feel more predictable and controllable.

“Companies sometimes don’t recognize the symbolic value that comes with taking an employment action, and how it’s likely to be interpreted by different people. And that’s the thing that is important to pay attention to. When you make the decision to terminate somebody’s employment, it’s critical to plan for how the company will explain it to various constituent groups,” Stevens says. 

“Because they are going to come to their own conclusions about what happened and why.  And often those invented conclusions can spread and significantly undermine employee morale.”