Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials HomeLegal PostWorkWhy boards miss the warning signs their CEO needs to goHoward Levitt: One of the enduring myths of corporate governance is that exceptional business performance can excuse otherwise problematic leadershipLast updated 1 hour ago You can save this article by registering for free here. Or sign-in if you have an account.The difficulty is that boards often encounter warning signs one at a time. Photo by Getty Images/iStockphotoFew decisions test a board’s judgment more profoundly than determining whether a chief executive should remain in office.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorContrary to popular perception, the challenge is not identifying the warning signs; more often, it is recognizing what they collectively mean.Corporate history is filled with examples of boards that acted too late.When a corporate crisis becomes public, attention naturally centres on the CEO. But increasingly, investors, regulators and shareholders are shifting their focus and asking the question: Where was the board?It is an uncomfortable question because the warning signs are usually visible before the crisis became apparent.FP Work touches on HR strategy, labour economics, office culture, technology and more.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Work will soon be in your inbox.We encountered an issue signing you up. Please try againA talented executive unexpectedly departs. Then another.A complaint is raised regarding a senior leader. It appears isolated.An employee survey reveals concerns about culture. Management provides reassurance.A respected executive resigns. The explanation seems plausible.Viewed individually, each event seems unalarming. Each can be explained. Each may even be dismissed.The difficulty is that boards often encounter warning signs one at a time.Only in retrospect does the pattern become obvious.Governance is, in many respects, the art of recognizing the pattern as it begins to emerge.There is a reason that this is difficult.Boards rarely fail for lack of intelligence. Most are composed of highly accomplished individuals who have spent their careers making consequential decisions. Their failures tend to arise from something far more human: optimism, loyalty and the hope that tomorrow’s information will make today’s difficult decision unnecessary.A board wants the chief executive to succeed.It has often selected that individual, supported them and publicly championed them. In many cases, they were recommended to the board by that individual.No board wants to conclude that the person entrusted with leading the organization is now putting it at risk.Yet that is sometimes precisely what occurs.One of the enduring myths of corporate governance is that exceptional business performance can excuse otherwise problematic leadership.It does not.Indeed, some of the most significant governance failures occur during periods of success.Revenue grows. Analysts are satisfied. Strategic objectives are achieved.Yet beneath the surface, something less visible is taking place.High performers begin to leave. Potential successors fail to emerge. Candour becomes less common. Information becomes more filtered. Risks that should be confronted become risks that are tolerated.As an employment lawyer, I have frequently observed organizations extend extraordinary latitude to leaders whose conduct would not be accepted from anyone else. The justification is usually straightforward.The individual is simply too valuable. And often, that appears true — for a time.The danger arises as a board gradually discovers that the value and the risk have become inseparable.The qualities that once made a chief executive indispensable can, under different circumstances, become liabilities. Confidence becomes arrogance. Determination becomes inflexibility. High standards become oppressive leadership. Loyalty to a successful leader becomes reluctance to exercise independent judgment.The board’s obligation, however, is not to any individual. It is to the institution.That distinction lies at the heart of effective governance.This does not mean every complaint warrants dismissal, nor does every difficult leader require removal. Sound governance demands judgment, context and restraint.What it cannot permit is wishful thinking.The most consequential board decisions are rarely the dramatic ones.More often, they are the many smaller decisions directors postpone because there appears to be no immediate urgency.In many governance failures, the board eventually reaches the correct conclusion — but far too late. It may be years after employees had reached it, or shareholders began to suspect it. Regulators may already be asking questions.The decision itself is no longer difficult. Only the consequences are.The most expensive CEO termination is seldom the one that occurs prematurely.It is the one that occurs years after the board first sensed it might be necessary.Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers with offices in Ontario, Alberta and British Columbia. He practises employment law in all provinces and is the author of six books, including the Law of Dismissal in Canada. 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