Director firings: war stories.

• Author: Cagan, Dennis
• Position: BOARD PRACTICES - Personal account

Sometimes the firing of a director can be sad, humorous, and strange, all at the same time. Here are several such cases that I have been involved in.

* You're Out ... Oops, Maybe Not: In the 1990s I was on the board of a private Internet company. There were seven directors: the founder/CEO (who directly and indirectly voted a majority of the stock); a friend of mine who was chairman and had recruited me; a high-level tech executive who represented his company as a strategic investor; three other stellar execs that I personally knew and recruited to join this board; and me.

One day in the midst of a regularly scheduled board meeting, with no warning, the CEO asked three of us, including the chairman, to resign. He simply said that he did not want us on the board anymore. We knew that it was a result of a difference of opinion on certain strategic issues. Having majority control he called the shots. The remaining three directors had no choice. He asked the three of us to step out of the room while the board discussed our termination.

When we re-entered the meeting the strategic investor told us that there was a snag. The board would not confirm the founder as chairman, and none of the other three would assume the role. Therefore, the founder must retain one of the three of us as chairman. The CEO did not select me, or the previous chairman. He selected the colleague that I had recruited (who had actually previously been CEO of one of the fastest companies to ever go from zero to public on the NYSE), who promptly then quipped, "This is the strangest board meeting I have ever been in. One minute I'm being fired, and the next I'm the darn chairman!"

* A Founder's Dilemma: I was once on the board of a healthcare technology company that I had originally conceptualized and was the seed investor. I even recruited the founder to leave the company he previously founded, which was then public. (He was no longer its CEO.)

Things progressed well with him as the CEO of this new firm. We soon raised venture capital, and the CEO got pressured by the new investors to add a director of their choice. All of the other outside directors had seats tied to their investment; I did not. Also on the board was a nominal co-founder. As the VP engineering he was a terrific technology manager but a poor director. He never spoke a word outside of his specific presentation on the progress of the product.

Given that a new class of preferred institutional investors were...