How HR should handle a CEO ousting

Legal expert Donovan Cheah and HR director Shirlyn Ng weigh in on the impact of a CEO departure on employees, and how HR can safely navigate the situation.

The ousting of a CEO — especially if it's one that is aired across all news channels — can have a dire impact on employee morale. Not only could it trigger insecurities about the future of their role, but it could also affect their perception of the organisation and its leadership, depending on how the situation is handled.

The ousting of OpenAI's CEO last year, for instance, saw employees threatening to quit amid the turmoil - putting the spotlight on how organisational leaders should manage the aftermath of similar instances.

In view of this, Priya Sunil speaks to Shirlyn Ng, Human Resources Director for Asia at Vertiv and Donovan Cheah, Partner at Donovan & Ho to learn how CHROs can manage the impact of such situations on the workforce.

Referencing the return of OpenAI's CEO following his ousting, Ng notes that managing the impact of 'Boomerang CEOs' on the workforce requires a strategic approach from CHROs. "In situations where CEOs leave and then return to the business, confusion and distrust among employees and stakeholders can arise.

"The CHRO plays a crucial role in determining the information to be shared and when to communicate with employees, considering the differing obligations of privately held and publicly traded companies."

She adds: "It's especially important in 'boomerang' situations where conflicting information may be apparent in the dismissal and return communications."

To effectively manage the impact, she shares, the CHRO needs to be part of the C-Suite stakeholders' discussion, raising possible implications and providing mitigating solutions.

She elaborates: "It's essential to agree on a timeline and communication message with the C-Suite stakeholders. Providing clarity on the 'why' behind the decision to the staff and articulating the company's direction is crucial."

It is also key to consider cultural nuances in managing the situation, and as Ng suggests, the CHRO can look at assembling a small team that can provide input on how different messages may be received by employees and the public.

The leader adds: "Empowering managers with details and talking points, aligning communication for consistent messaging, and providing platforms for staff to raise questions and concerns are important steps. Identifying talents at risk of leaving due to the situation and conducting pulse checks on staff sentiments can help address concerns effectively."

As such, she affirms, it is crucial to have in place follow-up sessions and continuous efforts to build trust through clarity in communication, addressing concerns, and listening to the workforce, in order to manage the impact of such situations on the workforce.

Delving deeper, she notes a point on how the CHRO can work with other C-suite stakeholders to present a unified front, in specific aligning with them on the reasons for the decision, messaging, timeline, and the direction forward.

"Together, they can develop a comprehensive communication strategy outlining when, who, what, and how to communicate, while ensuring consistency and avoiding ambiguity or contradictory messages."

Some ways this can be done include:

• Curating messaging, talking points, and FAQs and cascading these to all leaders and people managers.
• Organising sessions to ensure everyone involved in communication understands their role.
• Providing clarity on the 'why' behind the decision, company directions, and the way forward, through town hall meetings led by senior leaders.
• Putting together smaller group communication sessions for second-line leaders to reinforce the messaging.

"It's crucial to articulate the impact of the change on staff and provide platforms for them to raise questions and concerns, addressing them genuinely and earnestly, especially through local leaders and different communication platforms."

Navigating the legal implications

Tackling the topic from the legal perspective, Cheah talks about the legal implications such an ousting brings forth, and ways in which HR can safely navigate these.

He shares: "When a CEO is ousted, HR must navigate numerous issues to safeguard the organisation's interests. Contractually, termination terms such as severance packages and restrictive covenants need careful consideration.

"If the CEO is under an employee share option scheme, there are specific issues to address regarding the treatment of unvested and/or unexercised options, which can impact the company's equity structure and financial obligations."

Succession planning should have been in place to ensure a smooth transition, the legal expert points out, noting that practical matters such as changes to the approval authority matrix or bank authorisation/signatory issues should have been anticipated and planned for in advance. Otherwise, he adds, the CEO’s removal could cause unnecessary roadblocks in operations, such as not having anyone available to authorise important payments or sign contracts.

He also stresses the need for legal considerations, keeping in view the risk of unfair dismissal claims, especially in jurisdictions such as Malaysia where such claims can lead to significant financial exposure. "Remedies for unfair dismissal are often based on the employee's last drawn salary and length of service, highlighting the legal and financial risk in cases involving high-level executives like CEOs."

In addition to legal risks, according to Cheah, HR must anticipate other repercussions on the organisation, including public relations challenges, impacts on company culture, and employee morale.

In that vein, he emphasises, crafting a precise communication strategy is paramount to maintaining transparency and trust during this sensitive period.

"To navigate these complexities effectively, HR should collaborate closely with legal counsel and financial advisors to develop a comprehensive plan. This plan should address contractual considerations, mitigate legal risks, and proactively manage potential impacts on organisational stability and reputation," Cheah concludes.

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Photos: Provided (Left: Donovan Cheah; Right: Shirlyn Ng)