Chief executives are fundamentally the same as everyone else: They put their pants on one leg at a time just like the rest of us. Except, that's not entirely true.
My personal practice consists primarily of acting for employers and chief executives. There is virtually no resemblance between negotiating a settlement for a company's leader and a regular employee. Few such cases ever get to court because the image of most companies is inextricably interwoven with their chief executive, the very identity of a company can be placed at risk by his or her dismissal.
When an employer fires a chief executive, the potential exists for:
The company's market capitalization to plunge.
The company is left without leadership, where no succession planning has been done.
If it is a public company, outside analysts may question the company's direction and speculate on what the departure could mean for its future.
There might be speculation as to whether there was some impropriety that lead to the termination.
A succession battle could break out.
Customer loyalty can disintegrate, particularly if the chief executive was a significant relationship manager.
If a lot of the company's goodwill is reposed in that person, it will will dissipate, too.
The person at the helm often has the most intimate knowledge of the company's history, relationships, practices, business strategies and opportunities and that history leaves with them.
Informal arrangements made between the company and third parties, which were based on the relationship with, or goodwill of, that chief executive may quickly cease.
Because the chief executive often is the repository of all of a company's confidential information, as well as inchoate "skeletons," tremendous havoc can be wreaked if they join a competitor. Although there are fiduciary obligations not to solicit a former employers clients, customers or business opportunities, such actions can be difficult to prove and a well-placed advertisement can ensure it is the employees and customers who do the approaching. Any one of these concerns is worth more to an employer than the eight-figure settlements usually negotiated for senior executives. In my experience, none are resolved on the intrinsic legal merits of the case. These "hidden persuaders," instead are levered to extract a settlement far beyond any legal entitlement. The role of the chief executive's counsel is to consider which of the points above can best be used to get the highest possible settlement.
Conversely, the job of the employer's counsel is to develop a crisis management strategy. Whatever underlies the departure, counsel must determine how best to shore up the employer's potential weaknesses. Some devices that can assuage possible problems include a future consulting contract with the departing leader, a mutually agreed announcement, successionship plans (on either an interim or permanent basis), a non-competition agreement tied to continuing severance payments, a quick analyst call and prop up calls to significant third parties, customers and suppliers. The solution is invariably elastic and individual.
Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers. He practises employment law in eight provinces and is an author of several books, including upcoming The Law of Hiring in Canada. He can be reached at hlevitt@levittllp.ca.
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