Lexpert Magazine

54 LEXPERT MAGAZINE | MAY 2018 | MAKING A NECESSARY EXIT | "It's risk management, like fire or cyber security risk," he says. "You have fire in- surance, you have staff training, fire safety equipment and computer redundancy. en, if there's a fire, it should go a lot bet- ter than if you didn't plan for it." He points to the practice of tabletop exercises around cyber security, in which a corporate lead- ership team is given a hypothetical cyber security breach and required to devise a complete response. "ey'll fumble around for a bit, but eventually they'll figure it out." When everyone is satisfied with the tabletop response, it's incorporated into the cyber security plan. "You can't do too much of this." Reiter says a similar sense of exigence should drive succession planning, but that's the exception rather than the rule. "In my experience, although many, many compa- nies recognize the need for it, very few have done it." BEST LAID PLANS French says it's now rare that she gets called in by a client company aer the CEO has been fired. But sometimes it's not long be- fore. "What would it look like if we fired our CEO?" is the general shape of the ques- tion she gets asked in numerous cases. For the more forward-minded, she says, planning for the untimely loss of a corpo- rate leader should begin by ensuring the Board of Directors has full legal under- standing of its authority in the firing and transition stages. Boards can be hamstrung by such questions as how far in advance to give Board members notice of a meeting to remove the CEO, whether the meeting can be conducted by phone or whether they actually have the power within corporate bylaws to fire the CEO, she says. If it's not spelled out, it should be. And that should be followed by similar authorities for all the necessary and potentially necessary steps until a new leader is instated, including ap- pointing an interim leader from amongst the executive Board members, having the Board chair fill in, retaining an interim leader on contract, hiring a search firm and appointing special committees to oversee succession and business-as-usual opera- tions during the interregnum. e check list is long and involved. "I literally have a binder, so that it's all laid out," French says. Muddling through, she promises, will not be an en- nobling experience. "Being prepared and proactive is key," says Lisa Talbot, a governance expert with Torys LLP in Toronto. "e necessity to re- move a CEO on short notice can be a crisis (and) one of the fundamental responsibili- ties of a Board is to manage risk and pre- pare for crises." A new CEO's employment agreement should include grounds for removal, entitlements upon termination without cause and circumstances giving just cause for termination without notice or severance. Policies should address proper procedure for the investigation of allega- tions of misconduct and Boards should consider an outside audit of their policies and procedures. "Boards would be well-advised to have a plan in place (for) the removal of a CEO on short notice," Talbot says. INTERNAL ISSUES As primary legal advisor to both the Board and the CEO, in-house counsel an unen- viable position when it comes time to toss the boss. e GC likely works closely with the chief executive on a daily basis and this oen develops into a close professional and personal relationship. While the GC owes his or her first duty to the company, French says, the Board may still decide it's best for all concerned if key aspects of a CEO firing are le to outside counsel. Reiter says Boards bear primary respon- sibility for a succession plan that contem- plates removal of the CEO. But if the Board doesn't address the issue, "the GC should be calling it to their attention." If a time comes when the Board is con- sidering CEO removal without cause, per- haps because of corporate performance is- sues, French says, they may wish to consult outside counsel and leave the GC out of it to avoid souring the trusted-advisor rela- tionship in the event they ultimately decide to keep the CEO. In the event that the CEO is about to be fired for nefarious activities, Reiter says, the GC very well may be the one bringing the case to the Board. "I've seen a range of GC involvement from nothing to leader of the pack," he says. But, no matter the circumstances, Re- iter says, "the GC shouldn't be the one to walk in and say, 'I want you to know you're fired.'" Aer all, the GC is a subordinate of the CEO. Firing should be the role of the Board chair, typically accompanied by out- side counsel. It's just more respectful and leads to fewer combative reactions from the deposed executive, he says. "What doesn't work," French cautions, "is sending in the guy on the Board who has a relationship with the CEO." She is sometimes retained specifically to fire the CEO and she says it should always be done on the basis of thorough legal advice. "It goes wrong when there's too much cutting of your own hair." However it's handled, it should never be allowed to devolve into a negotiation, Re- iter says. "e decision is taken, it's not a discus- sion," he says. e Board representatives should present terms of dismissal that have been thoroughly worked out in advance. Depending on the situation, the Board may decide to be generous or tough. "You need to have thought through, is this for cause, or not?" he says. TRUE FACTS Communication is vital whenever a leader "I'm like a (corporate) divorce lawyer," French says. Continuing the analogy, she adds, Boards of Directors need to be careful about the credentials they look for when it comes to finding a successor in the top job. "You need to make sure you're hiring someone who's going to be good marriage material. SHANA FRENCH > SHERRARD KUZZ LLP

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