Board Oversight and CEO Dismissals

The Journal reports that the number of CEO firings is on the rise.  The article doesn't have much perspective, merely noting that there has been a spate of dismissals since the first of the year.

• William Watkins, ousted Monday at Seagate Technology LLC, is the sixth CEO of a publicly held company to be replaced in just the last eight days. His exit follows the departures last week of CEOs at Tyson Foods Inc., Borders Group Inc., Orbitz Worldwide Inc., Chico's FAS Inc. and Bebe Stores Inc.

It would be nice to attribute the behavior to a more active role played by boards in the oversight of public companies.  Alas, it is more likely cyclical.  When markets are down (in this case, way down), more CEOs find themselves unemployed.  But the numbers can be misleading.  Last year, when the bottom fell out, the number of CEO departures increased slightly, from 56 of the S&P 500 to 61.  Moreover, the WSJ noted that the number reflected the companies that "changed" CEOs.  Thus, some of them likely retired or left without board impetus.

There are probably few functions more important for the board of directors than oversight of the CEO and other top officers.  Unfortunately, there is reason to believe that directors receive skewed information about CEO performance and, in fact, are "captured" by top officers.  This is a consequence of weak fiduciary standards and a definition of independent director that does not ensure independence.  In short, it is a problem of Delaware law.