The Importance and Legal Realities of Succession Planning
A Board of Directors, LLC managers, and partners all have a fiduciary duty to make every reasonable effort to protect the interests of their respective companies. This includes anticipating and addressing risks that could potentially harm the business, including the planned or unplanned departure of senior executives.
Should a CEO or another senior executive leave a company without any succession plan in place, a power vacuum may result. Infighting may disrupt business operations and prevent the company from achieving its objectives. Should these adverse outcomes occur, a Board of Directors, LLC managers, and partners could be held accountable for their failure to implement a succession plan.
In other words, creating a succession plan does more than protect the long-term future of a business. It also protects a business’s leaders from breach of fiduciary duty claims.
In certain situations, you and other members of your business’s leadership may have the unenviable task of asking for a voluntary resignation from your CEO. Before making this request, you must confirm that a majority of the company’s directors agree such a drastic change is necessary. You will also need to come to a consensus on a prospective successor or an interim CEO.
Prior to formally engaging the CEO, you must also review the corporation’s specific bylaws, the CEO’s employment agreement, and any applicable state or federal laws. These contracts and laws may limit your options or dictate the circumstances under which the CEO can be removed. Our team at The Veterans Advocacy Law Group can thoroughly evaluate the circumstances and walk your company’s leadership through all available strategies.
Next, several key decision-makers – typically directors – will meet with the CEO and discuss the resignation. It is important to emphasize to the CEO that their departure is not optional: You are only discussing its terms. This is especially true in cases where there is cause for termination.
The next steps will depend on whether the CEO agrees to resign. Should they refuse, you will need carefully follow specific procedures to facilitate a removal. Our national Veterans succession planning attorneys can provide the dependable guidance you need to navigate these high-stakes situations.
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