A Booz & Company study has revealed a dramatic increase in the number of leading CEOs who were terminated or resigned from their roles in 2008. The report noted that 40% of all departures were due to the executive being removed from their role, while the bulk (44%) were planned “retirements”. Last year, a quarter of CEOs of ASX200 firms departed from the roles, up from 41 in 2007 and 26 in 2004.

Despite being less affected by the global financial crisis, turnover among Australian chief executives was actually higher than for global businesses, with only 35% of global executives sacked from their roles last year. Booz chief Phil Mottram noted that “it is tempting to conclude this is because boards globally put a premium on stability at the helm in these industries as the crisis took hold … but it may also be that Australian boards are less timid and more willing to change under-performing leaders, even in a turbulent year.”

While Australian boards should be lauded for dismissing poorly performed executives, they stand criticised for two other faults — namely, hiring those executives in the first place, and too often, paying substantial termination benefits to departing executives — be it due to poor performance or retirement.

Leading incidents of board failure was the decision of the Oz Minerals board to grant a $9.3 million ex gratia (in other words, not necessary) termination payment to colourful former CEO Owen Hegarty. Hegarty received the payment after guiding Oxiana into an ill-fated merger with Zinifex, which almost led to the company’s collapse. Similarly, former Fairfax boss David Kirk, who oversaw a tumultuous period at the helm of the publisher, received a $4 million termination payment. Admittedly, at least Kirk appeared to have been terminated.

Almost worse is the habit of boards to make payments to retiring CEOs and label those gifts as termination payments when they are not legally owed given the executive was never actually terminated. The best example of this failure was the decision by the Telstra board, led by former chairman Donald McGauchie, to pay Sol Trujillo a $3 million termination gift despite Trujillo publicly claiming that he was retiring to return to the US to spend time with family. Trujillo’s contract explicitly stated that the Wyoming-native would not receive any payment if he elected to retire from his role.

Similarly, Transurban announced to the ASX that former managing director “Kim Edwards has informed the group’s board of his desire to retire from his position”. It appears that the Transurban board is unfamiliar with the difference between termination and retirement, given that it paid Edwards a termination payment of $5.25 million (as well as a short-term cash bonus of almost $10 million) in 2008.

While Australian boards are to be lauded for acting quickly to remove poorly performing CEOs, those same boards are also wantonly handing out shareholder monies to failed executives who retire, rather than are terminated.