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Management Buzz 1/03

Why you may want to have your lawyer give your company the once-over; the consequences of firing your CEO

Make It Legal
Asking your attorney to give your company the once-over should be on your New Year's resolution list. January 1 is a popular date for initiating laws. Maria Karos, a partner at the Dallas firm Bell, Nunnally & Martin LLP, suggests three major aspects to examine:

1.Structure: Make sure the corporate structure and format still meet your needs. "That's the foundation of the house," says Karos.

Five years ago, for example, you may have established your business as a partnership. Now you've got employees--some of whom you want to give a stake in the firm. Incorporating allows you to do that.

2.Contracts: Karos suggests taking a close look at your contracts, especially for employees and independent contractors. If you've expanded across state lines, or if your employees live in a neighboring state, your contracts could be invalid.

3.Policies: Your employee handbook needs regular revision. It'll be difficult to fire an employee for, say, downloading porn at work if your handbook doesn't spell out that this is not allowed.

"It not only helps employees know the policy," says Karos, "but also helps the employer think about what the policy should be."

Get What You Ax For
Kicking yourself upstairs is usually a good move for entrepreneurs. You bring in a chief executive to handle details, while you focus your energy on other endeavors. But should something go wrong, be wary about a knee-jerk reaction. Firing a CEO rarely improves company performance, says Margarethe Wiersema, strategic management professor at the University of California, Irvine.

Wiersema conducted a study of turnover among corporate executives. She found that CEO dismissals now top retirement and voluntary departures as the reason for executive change in the Fortune 500. "The main reason is the pressure on shareholder performance," she says. And it's not just among the giants. Smaller firms are feeling the pressure, too.

When she sifted the numbers, Wiersema found that company performance didn't improve after CEO firings. "That doesn't mean you shouldn't get rid of someone who isn't performing," she says. To get your firm back on track, however, you need to identify the root problem before letting the axe fall.

If you do end up firing your CEO, take plenty of time before deciding on a new one to take the reins. Look for a candidate who's had success in reorienting a company's work force--not just a great salesperson or marketing whiz. Of course, this is not as quantifiable a skill as sales growth. That's for you to investigate, which is why no one said that giving up the top spot would make your life easier.


Business writer Chris Sandlund works out of Cold Spring, New York.

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This article was originally published in the January 2003 print edition of Entrepreneur with the headline: Management Buzz 1/03.

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