Lexpert Magazine

LEXPERT MAGAZINE | MAY 2018 55 | MAKING A NECESSARY EXIT | is unexpectedly lost, Reiter says. Gover- nance specialists agree it's crucial to instill confidence in investors, bankers and other suppliers, employees and customers. "is whole communications piece is very important," he says. "You have to decide who to inform and what to com- municate" and that's much easier to do as an advance-planning exercise than when the Board is besieged by crisis — possi- bly triggered by scandal. French says her binder includes two dras of initial press releases, one for the case of the mutually- agreed departure and one for a unilateral Board initiative. Reiter says communications rule num- ber one is that, where scandal is concerned, transparency will prevail. "In today's world, everything will come out. Somebody has a video of everything and the notion that you can do anything that's going to stay hidden is fraught with peril. "It's short-sighted and pretty well univer- sally wrong to pretend the facts aren't what they are," he says. "If you're firing for some scandalous cause, you say, 'We've learned this, and we don't stand for this.' Other- wise, your employees look at the company and say, 'Is this who we really are?'" At which point, he says, the most valuable tal- ent begins to bleed away. And customers are far more mobile than employees. In the public domain, Reiter says, "it's not the problem — it's how you deal with it that matters." Just as companies bring in outside coun- sel to advise on sudden transitions, French says, they should consider whether they need a crisis communications advisor. "Announcing the CEO is leaving, effec- tive tomorrow, and wishing him well in future endeavours, well, that's not really authentic," she observes. It invites rumour to take over from fact, creating distractions at a difficult time and giving the company a credibility problem to add to its woes. "For purposes of setting standards, the company may want to state the cause," she says. "But if you terminate for cause, is that something you want to litigate?" Termina- tion for cause gives the former CEO strong motivations for litigation, including loss of severance pay and hurt pride, and liti- gation will ensure that all the ugly details of the situation become public through court filings. Between full disclosure and fudging the facts, she says, there's likely room for external counsel to convince the departing CEO that both sides interests will be best served by a dignified parting — including a press release that makes the company policy clear. Clear communications from the Board will also be important in empow- ering managers at all levels to continue business as usual and maintain progress on major projects. WHO'S NEXT Reiter says, if a succession plan is conceived well in advance and includes the name of a designated successor, that fact needs to be very tightly held by a small committee of the Board until a transition is under way. "If I name Mary, over there, as successor and that gets out … the other three people who thought they should be successor will have their resumés out on the street pretty quickly," he says. en, if Mary leaves the company before a sudden CEO loss, the Board may well be le to choose between its fih-in-line-of-succession or installing an interim leader — the very situation the succession plan was intended to avoid. When she was in-house counsel, French recalls, the Board had taken all the neces- sary steps to identify and approve a succes- sor well before the CEO was deposed. "at made the transition more success- ful than it otherwise might have been," she says. e successor appeared at the employ- ee meeting where the transition was an- nounced and became the focus of employee questions, rather than the departing leader. Where an internal successor is neither designated nor obvious, Reiter says, nam- ing an interim leader buys time for the Board to consider its options while posing no threat to internal candidates. WHEN THE CEO WAS A FOUNDER Harpreet Sidhu says Pethealth Inc. is a very different company today than it was when she became general counsel, soon aer admission to the bar six years ago. Today the multinational pet insurance provider is a subsidiary of a larger company with solid governance procedures. en it was a rapidly growing, publicly-traded concern under the direction of a mercurial founder and CEO. Between 2012 and 2014, the founder and leader le "not once, but twice," Sid- hu says. In the first instance, a phone call in- formed the founder that his pre-teen daughter had suddenly died. "He just liter- ally ran out the door," she recalls. "Half the executive didn't even know he was gone." He took a six-month leave and a company accustomed to rule by founder fiat was le rudderless, she says. No one else had rela- tionships with major suppliers and custom- ers and executives contested authority for key decisions. "ey were going through Board minutes to figure out what he would do if he were here." en, in 2014, the Board voted to re- move the founder and appoint a new CEO. e second time, she says, things went a bit better but it was still a rocky transition. Since then, the entire executive team has been changed out, with the exception of Sidhu, and the business is on a solid foun- dation. Transition has been a lengthy pro- cess but she says she expects the Board and the new CEO will soon be in a position to consider detailed succession planning. "Reiter says communications rule number one is that, where scandal is concerned, transparency will prevail. "In today's world, everything will come out. Somebody has a video of everything and the notion that you can do anything that's going to stay hidden is fraught with peril." BARRY REITER > BENNETT JONES LLP

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