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When Should CEOs Be Fired?

There's a difference between good chief executives who have made mistakes and ones who are unable to lead

The Queen of Hearts in Alice in Wonderland had a simple solution for anyone who displeased her: "Off with his head," she would shout. The growing trend to fire CEOs quickly raises the question of when they should be let go. Should a chief executive be removed at the first hint of a difficulty, or should boards stand behind him or her, even if the CEO is responsible for a bad decision or an egregious error in judgment?

There is a difference between good CEOs who make mistakes and CEOs who are unable to lead and drive profitable top-line growth. No CEO is mistake-free. As Harry Truman once wrote, "Any schoolboy's hindsight is better than the President's foresight." When a CEO blunders and institutional investors call for his or her head, directors should ask first whether the CEO can correct the problem. Pressuring boards to fire the chief executive quickly for failure to perform isn't always in the company's best interest.