You founded your company, and have been the CEO since day one. You've shepherded your business from a garage start-up to a full-fledged business. Today, you have a couple dozen employees at your venture-funded operation, which is generating a lot of buzz.
Suddenly, you're feeling some dissonance from your board of directors. Members say they want "a CEO who can scale," and that's just not you. They want you to step down.
What can you do?
A few months ago, I wrote an article about firing your co-founder. Now I want to take a look at the flip side: What happens when you are the one who is being terminated or asked to step down? Here are five things to keep in mind.
You need to recognize that the company's lawyer is not your lawyer. That can be a difficult concept to grasp, especially if you have been dealing with that counsel since the day you signed incorporation papers. The reality, however, is that the company's lawyer answers to the board in this scenario, and cannot represent your interests. Your own personal attorney can help you understand exactly what your leverage is and, if necessary, help you navigate a separation negotiation.
The decision to terminate a CEO is generally left up to the board. However, your Board may not actually have the power to remove you from the CEO spot. The conditions surrounding your removal as CEO are almost certainly addressed in three places: your company's charter documents (articles of incorporation, bylaws, etc.), your employment agreement, and any stockholder agreements. You (and your lawyer) need to thoroughly review any company documents that touch upon your employment terms, director voting, board-meeting protocol, officer appointment or removal, and director election. These documents significantly impact your rights in this tense situation.
If the board is not looking to remove you from the company completely, then you're faced with an A/B decision. In my experience, CEO replacements tend to go down in one of two ways: In scenario A, the outgoing CEO is incredibly supportive of the decision, realizes that she is a better long-term fit heading up product development or another department, and she actively participates in a new CEO search. In scenario B, the CEO has no desire to stay with the company if she can't be CEO. She wants to negotiate a good separation package and leave. Only you can know which path is right for you—but it's important to make that choice quickly. Your decision will impact how you will respond to the board's announcement in the short term.
In virtually every scenario where a CEO leaves the company, the board wants to keep things completely "buttoned up" from a legal perspective. Board members realize that future investors and acquirors will want to see a separation agreement and release in place with the former CEO. This is good news for you. It generally means that you have some leverage to negotiate some outgoing compensation—perhaps some stock vesting acceleration or severance pay. Your attorney can provide guidance on what kinds of severance packages are standard.
Of course, this is easy for any outsider to say. The start-up was your baby, your life, your inspiration. The truth, however, is that start-up life is a marathon, not a sprint. If you're true entrepreneur, this is probably just the first of many ventures. Try to take the good with the bad. Realize that while you may have a lot to learn from this episode, you also should not consider yourself a failure. In many cases, a CEO's "fit" with the board is an extremely subjective determination. Try to extract the positives from this situation and move on—whether you're moving on within the company or outside of it in your new venture.