The Board of Directors 519consensus needed to take action. The CEO and the directors usually have
worked together for some time; they are good, perhaps close, friends. For the
CEO, dismissal is a catastrophic event. Taking action that will probably destroy
the career of a business associate is a difficult decision.
Replacing the CEO precipitates a crisis, not only for the board but also for
the entire organization. When it happens, the board must be prepared to an-
nounce a successor and to deal with the problems inherent in the transfer of ex-
ecutive authority. Such action puts a major burden on the outside directors.
Nevertheless, this is their responsibility to the shareholders and to the other
constituencies of the corporation.
For example, in early 2000, Jill E. Barad, CEO of Mattel Inc. the world’s
largest toy manufacturer “resigned.” Ms. Barad built one of Mattel’s f lagship
products, the Barbie doll, from $250 million in annual sales in the mid-1980s to
$1.7 billion in 1999. In the late 1980s, Barbie’s growth slowed, and Ms. Barad
turned to acquisitions. Unfortunately, several acquisitions failed to live up to
expectations. A loss of $82 million was recorded for 1999, and Mattel’s stock
price dropped from a high of $45 in 1998 to a low of $11 in early 2000. The
board acted, and Ms. Barad “resigned.” Apparently the board decided that
there was no suitable successor within the company. They selected Robert
Eckel, formerly CEO of Kraft Foods to be the new CEO.
The turnover of CEOs of major corporations seems to be accelerating in
the twenty-first century. Mr. William Rollinick, a Mattel board member and for-
mer acting chairman, observed that when a chief executive stumbles, “there’s
zero forgiveness. You screw up and you’re dead.” The investing community puts
boards under considerable pressure to act when things appear to be going wrong.
Sarah Telsik, executive director of the Council of Institutional Investors, which
represents 110 pension funds with more than $1.5 trillion in assets, believes that
underperforming CEOs were not losing their jobs fast enough.
Too fast or too slow? A board should decide what is in the long-term best
interests of the company and its stockholders. In some instances, immediate
pressures should be resisted in favor of long-term considerations. In other
cases, the board should “bite the bullet.” The decision is not easy.
Unfriendly Takeover Attempts
Another crisis event is the hostile, or unfriendly, takeover attempt. Board deci-
sions vital to the company’s future—even its continued existence—must be
made in circumstances in which emotions are high, vested interests are at
stake, and advice is often conf licting. The business press reports daily the dra-
matic developments of offers and counteroffers, tactics, and strategies as each
side in the struggle seeks to gain an advantage. Boards and management spend
much time preparing offensive and defensive plans.
One of the problems in takeover situations is that the board, which repre-
sents the shareholders, may have interests that differ from those of manage-
ment. In most successful unfriendly takeovers, the senior managers of the