Nonprofit CEOs are drafting exit agreements with their boards to establish terms of their departure, even years down the line. Is this something you need—or need to avoid?
When we talk about climbing the executive ladder in associations, we usually talk about getting in the door: Polishing the resume, nailing the interviews with the search committee, making good first impressions during those critical first weeks on the job. But today an executive assumes he’ll have a long tenure at his peril, and many long-time executives are inching closer to retirement. So, how much thought have you given to heading out the door?
Perhaps more important: Have you considered wrapping some legal language around your inevitable departure from your job?
Too many transitions become strained because of lack of attention to what comprises a good ending for an executive.
In the latest issue of Nonprofit Quarterly, three writers discuss exit agreements—documents that lay out the compensation arrangements and expectations for involvement at the close of a leader’s tenure. “Too many transitions become strained because of lack of attention to what comprises a good ending for an executive— particularly a founder or long-tenured leader,” they write. As if to emphasize the extreme peril of failing to draft such a document, the article depicts an office floor as a crime scene, chalk body outlines and all.
Squabbles between CEOs and their boards can and do get ugly. This past summer, AssociationsNow.com’s Ernie Smith looked at the case of Men’s Wearhouse CEO George Zimmer, who was forced out in a messy dispute that to some extent involved the question of who would take the company’s reins after him.
The association world isn’t immune to the problem. In a 2012 article for Associations Now on making a graceful exit, Leigh Wintz, FASAE, CAE, cautions that the executive who doesn’t think about how her departure will be handled is effectively giving the board permission to do it for her. “Everybody knows that when an announcement states a CEO is leaving ‘to pursue other opportunities,’ it’s code for ‘the board fired her’ or ‘arrangements have been made to secure a rapid separation,’” she writes. “If you become a topic of conversation at board meetings, or if completing your performance review requires multiple sessions, it may be time to move on.”
Wintz gave her board 10 months’ notice. The authors of the Nonprofit Quarterly piece suggest that the window ought to be much longer—up to three years, in some cases. There are four general scenarios in which an exit agreement can be useful, they explain:
1. An executive is approaching retirement and wishes to better meet retirement savings goals.
2. A board wishes to keep a CEO on board longer, particularly in a case where the leader has a hands-on role in a complex new initiative.
3. The board wants to establish a compensated consulting role for the executive after his departure.
4. The board and CEO want to get on the same page on what the departure itself looks like, including farewell dinners, going-away bonuses, and the like.
There are downsides to these sorts of exit agreements, they note. Playing catch-up with compensation, for instance, can raise a red flag with the IRS, and any exit agreement that a board approves will effectively establish a benchmark for what the next CEO can reasonably expect.
Anything that fosters clarity between a CEO and a board is a good thing. But it strikes me that exit agreements run the risk of being earnest efforts to paper over the real problem: A lack of routine communication between a board and executive about what they want out of the relationship. Earlier this year I wrote about ways association CEOs can take assessing their job performance in their own hands, but there’s no substitute for the conversations that can raise these end-of-tenure issues naturally. “It’s your obligation to create points throughout the year where you’re able to have conversations that are a little bit more meaningful around your performance, how you’re handling things, and whether or not you [and the board] are on the same page,” Nancy Green, FASAE, CAE says in the story.
Would an exit agreement be useful for your organization? Do you already have one? Share your thoughts and experiences in the comments.