Why CEOs Don't Resign

Let me try to answer Matt Cooper's question: How come Warren Spector has been fired from Bear Stearns, but Jimmy Cayne is still there?

The answer is very simple: it's all to do with the management structure at public companies. The CEO serves at the pleasure of the board, and the employees all basically serve at the pleasure of the CEO. It's common to find CEOs on boards, but it's unheard-of to find any other employee on a board.

The reason politicians resign is that there is no easy way of firing them. In contrast, CEOs have very little job security these days. Cayne has more than most, because he has a very strong grip on the board, and is the single largest shareholder in the company. But even he can be fired, and it's the board's job to fire him if he's not performing up to scratch.

Cayne's job, at least as he sees it, is to fire any employee who doesn't perform – and Spector was directly responsible for the loss of billions of dollars in shareholder value. So he got fired. Simple as that.

CEOs don't resign when they do a bad job. Bob Nardelli didn't: if he simply resigned, he wouldn't have got a $210 million pay-off. Lord Browne did genuinely resign, but he was very close to retirement anyway, and had a lot more class than either Cayne or Nardelli, and in any case the reason for his resignation had nothing to do with the way he did his job.

Cooper thinks that Nardelli resigned because Home Depot "tanked". I think that Home Depot was actually doing pretty well, in terms of its results, when the board fired Nardelli because of the press that he was getting and because he wasn't moving the share price. There was no tanking, and no resignation. Just a common-or-garden CEO ouster.

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