Whatever the reason for it, the departure of a senior executive is always a difficult time for a company. But unplanned disruption at the top can be a time for reassessment. Here’s how to handle executive churn.
No matter what systems you put in place to prevent it, at some point you are likely to have to face up to key senior staff leaving your company. “You can’t eliminate churn,” says the pragmatic Hugh Robertson, founder and chief executive of marketing agency RPM. This may sound like a truism, but it’s absolutely astonishing that company bosses are still sometimes surprised when senior colleagues tell them they are leaving to spend more time with the family – in the Orkneys. They work hard to get the right team together, and once that’s done they believe that’s how it ought to stay. However, one of the few certainties in business is that it won’t.
“When we first set up the business, I thought RPM ought to be the answer to everyone’s prayers – clients and staff alike,” Robertson admits. “I used to be very affronted if anyone resigned and said they were leaving.” He quickly learned that no one can be all things to all people. For example, a recent study showed that the average length of service for a company director in the financial sector was 6.1 years, so they shouldn’t be so surprised.
Buried bodies
However, when the departure is sudden or unexpected there are always problems. When they jump, it may be to a better job, or for personal reasons. And even when they are pushed, it rarely results in legal action. “I tend to find a lot of the time that the director has simply lost credibility with the board or stakeholders,” says David Mitchell, who has stepped in to help more than 20 companies when their finance director has jumped ship.
He has never had to deal with conscious malpractice. The trouble comes when no one knows where the bodies are buried. Maybe the incumbent was reluctant to admit being out of his depth and the managing director didn’t notice. “Management in denial has been a common theme in many of my assignments,” Mitchell continues. “It’s not always easy to see what is going on under your nose.”
Contracts are key
So what can you do to limit the damage? In a creative business like Robertson’s, people are not merely the ‘greatest asset’, they are the only asset. “People management is undervalued and largely intuitive, but if you equip people to do it properly, it works. The biggest threat to a business like ours is that a senior manager will walk out of the door with clients or people,” says Robertson. “A contract of employment is best left in a drawer gathering dust. Getting it out means there has been a failure.”
Nevertheless, a departure is hedged with legal considerations and sound contracts are good housekeeping. As a member of Faegre & Benson employment practice, Catrin Jennett lives and breathes contentious employment matters. “Normally when a senior executive leaves, unless they have a claim for unfair dismissal, everything is dealt with in the contract, and it is up to the company to assess the costs associated with their leaving,” she says.
“Statutory provisions may come in if there has to be negotiation. Furthermore, depending on its size, the company has to make sure it complies with company law on directors’ rights, holds any required special meetings, and, of course, sees that their departing director resigns from the board.”
If it finds it has not covered its back sufficiently, a company may need to tie up the loose ends in a termination, or ‘compromise’ agreement. These are becoming quite common as a way of getting any possible future claims waived in exchange for a severance payment, according to Jennett. “You don’t want to make a hefty payment under the contract of employment and then in three months’ time face an unfair dismissal claim,” she warns.
But how do you stop a manager taking sensitive and valuable information with them? If restrictive covenants got left out of the original contract, they can be slipped into the compromise agreement. “Things like non-competition, confidentiality and gardening leave should have been covered,” says Jennett. “You may wonder why a director would agree to additional restrictive covenants at this stage, but if he was not going to compete anyway, it’s a way of increasing severance pay.”