You know, sometimes a public company
will pay its own CEO hundreds of
millions of dollars to leave. But before
we can understand why, we first need to
answer a surprisingly simple question.
Who actually runs a public company?
Welcome to A Lux.
Now, when asked that question, most
people would probably say the CEO. After
all, the CEO is the person giving
interviews, announcing new products,
speaking on earnings calls, and showing
up on magazine covers. They become the
face of the company, so it feels natural
to assume they'll be the person in
charge. But they're not. The CEO is the
person running the business, but they're
not the person with the final say. Above
them sits a small group of people called
the board of directors. Now, most people
wouldn't be able to name a single member
of Apple's board or Microsoft's board,
even though they have the power to hire
the CEO, decide how much they're paid,
and if they believe the company needs
new leadership, they can fire them. So,
who gave the board that kind of power?
The shareholders did. Every public
company is owned by its shareholders. If
you own one share of Apple, you own a
tiny piece of Apple. If you own an S&P
500 index fund, you indirectly own tiny
pieces of hundreds of companies. On the
other end of that scale are investment
firms like Vanguard and BlackRock, which
manage money for millions of people, and
together they own a large stakes in most
of the world's biggest businesses. The
important thing is that all of these
people are owners. The problem is that
millions of owners can't run one company
together. Imagine asking every Apple
shareholder to vote every single time
the company wanted to build a new
factory, buy another business, or hire a
new CEO. Nothing would ever get done.
So, instead of running the company
themselves, shareholders elect a much
smaller group of people to represent
them. That group becomes the board of
directors. You could think of the board
as the shareholders' representatives.
Their job isn't to decide what the next
iPhone should look like or what color
the company logo should be. No, they
step back from the day-to-day work and
focus on the bigger picture. Is the
company heading in the right direction?
Is management making good decisions? Is
this still the right person to lead the
business? That creates a chain of
responsibility that looks very different
from what most people imagine. The
shareholders own the company, the
shareholders choose the board, the board
hires the CEO, the CEO hires everyone
else. In other words, the CEO isn't
sitting at the top of the company,
they're sitting somewhere in the middle.
Most of the time, the relationship works
quietly in the background. The board
lets the CEO run the business, and the
CEO keeps the board informed about how
things are going. Years can pass without
the public hearing anything about the
board at all. But, every so often, the
board has to answer one question that
can change the future of the entire
company. Is this still the right person
to be making the biggest decisions? The
moment the answer starts to become, "Uh,
maybe not." everything begins to change,
and that is where the story really
starts. When the board stops believing.
Now, the board doesn't wake up one
morning and decide to fire the CEO. No,
for a company, changing its leader is
one of the biggest decisions it could
make. The CEO is responsible for
billions of dollars, thousands of
employees, and decisions that can shape
the business for years. Replacing that
person creates uncertainty, and
uncertainty makes investors nervous.
That's why boards usually avoid making
that decision unless they believe they
have no better option. Most people think
CEOs lose their jobs because of one big
mistake, a bad earnings report, a failed
product, a scandal. Sometimes, that does
happen, but it's actually quite rare.
More often, a CEO loses something much
more important than a good quarter. They
lose the board's confidence. Think about
it this way. Imagine you hired someone
to manage your life savings. If your
investments went down for a few months
because the whole market was struggling,
you probably wouldn't fire them
immediately. Bad periods happen. But
what if every meeting left you feeling
less confident than the one before it?
What if they kept promising things would
improve, but nothing ever changed? What
if the people working with them started
to leave? What if every new decision
seemed worse than the last? Eventually,
you wouldn't just worry about your money
today, you'd start to worry about the
money tomorrow. And that's exactly how a
board thinks. The board isn't trying to
decide if the CEO had a bad year. It's
trying to decide whether this is still
the person it wants making the next
hundred important decisions. And that
change in thinking is incredibly
important because the board's job isn't
to judge history. Its job is to protect
the future. A company can survive a bad
quarter. It can survive a recession. It
can survive a product that doesn't sell.
What becomes much harder to survive is a
board that no longer believes the person
leading the company knows where it's
going. That loss of confidence usually
happens slowly. Sales stop growing,
competitors start pulling ahead, new
ideas don't work out as planned,
talented executives leave for other
companies, investors begin asking
tougher questions on earnings calls.
None of these problems alone is enough
to get a CEO fired, but together they
can convince the board that the company
doesn't just have a business problem. It
has a leadership problem. The board also
sees things that most investors never
do. Directors meet with the CEO
regularly, review long-term plans,
discuss risks that haven't become public
yet, and hear directly from other senior
executives. By the time the newspapers
begin asking whether the CEO should be
replaced, trust that by that point the
board has usually been thinking about
that question for a long time. Once
enough directors reach the same
conclusion, the hardest part is over.
The board has decided it wants a
different leader. From that moment on,
the conversation is no longer about
whether the CEO should leave, it's about
how to make that happen without creating
chaos inside a company that maybe worth
hundreds of billions of dollars. And
that's why by the time the CEO is
finally told they're out, almost
everything has already been planned. But
what about the day that everything
changes? Because once the board decides
the CEO has to go, something interesting
happens. The hardest decision has
already been made. From this point on,
nobody is debating whether the CEO
should stay. The question left is how to
make that transition as smooth as
possible. Public companies do not
improvise moments like this because they
know millions of investors will be
watching. In fact, by the time the CEO
is told they're no longer leading the
company, dozens of people have probably
been preparing for that moment behind
the scenes. The lawyers already know,
the communications team already knows,
the investor relations team already
knows. The board already knows who will
take over even if it's only on a
temporary basis. In many cases, the
official announcement has already been
written before the CEO walks into that
meeting room. And that might sound cold,
but there's a good reason for it. The
moment news like this becomes public,
investors start asking questions. Why
was the CEO fired? Is the company in
trouble? Are more changes coming? If a
company doesn't have clear answers
ready, the market will quickly fill in
the blanks on its own, and those guesses
are often worse than the truth. That's
why announcements like these are usually
made after the stock market closes or
before it opens the next morning.
[music]
The company wants everyone to hear the
same story at the same time. Investors,
employees, customers, and journalists
all receive the information together
instead of learning about it through
rumors. The announcement also includes
something just as important as the CEO's
departure. It explains who is taking
over. Sometimes it's a permanent
replacement, other times it's an interim
CEO, someone chosen to lead the company
until a longer search is finished.
Either way, the message is the same. The
business is still running, nothing has
stopped. And that matters because public
companies are built to survive
leadership changes. Apple continued
after Steve Jobs, Microsoft continued
after Steve Ballmer, Starbucks, Disney,
Nike, Intel, and hundreds of other
companies have all changed CEOs while
continuing to serve customers the next
day. The company is designed to be
bigger than any one person. And inside
the business, another transition begins
almost immediately. The departing CEO
loses access to confidential
information, internal systems, and
future strategic plans. Public companies
have strict rules about who can access
sensitive information, and those rules
apply to CEOs just as much as anyone
else. For most employees, the entire
process feels surprisingly ordinary.
They open up their email, read a short
announcement from the board, learn who
the next leader is, and continue on with
their day. Customers often notice even
less. Stores stay open, products keep
shipping, meetings continue. The
smoother the transition feels, the
better the board has done its job. By
the end of the day, the company has
already moved on. The former CEO,
however, has not. Because while they may
no longer have the job, there's still
one part of the agreement that has to be
settled. And that is often the part that
shocks people the most. In some cases,
the biggest check a CEO ever receives is
the one they're paid after they've been
fired. It's like a $100 million goodbye.
After everything we've covered, we can
finally answer the question that we
started with. Why would a company fire
its own CEO and then pay them tens or
even hundreds of millions of dollars on
the way out? If the board has decided
the CEO no longer is the right person to
lead the company, why reward them with
one of the biggest paychecks of their
career? Well, the answer is the company
usually isn't rewarding the CEO, it's
protecting itself. Long before the CEO
is hired, both sides sit down and
negotiate an employment contract. And
unlike most employees, CEOs don't simply
receive a salary. No, their contracts
often include bonuses, stock rewards,
retirement benefits, and rules that
explain exactly what happens if the
board decides to replace them. One of
those rules is commonly known as a
golden parachute. The name sounds
extravagant, I know, but the idea behind
it is actually pretty practical. Imagine
you're running a company that's about to
receive a takeover offer. Selling the
company might create billions of dollars
for shareholders, but it could also mean
that you lose your job the moment the
deal closes.
>> [music]
>> And if that's the case, you suddenly
have a reason to reject an offer that
might actually be good for the owners of
the company. A severance agreement
changes that. It tells the CEO that if
they make a decision that's best for
shareholders, even if it costs them
their own position, they won't have to
worry about their financial future. The
contract also protects the company.
Imagine firing the CEO of a business
worth half a trillion dollars without a
clear agreement about what happens next.
A long legal fight could drag out for
years. Private board discussions might
become public in court. The company's
reputation could suffer at the exact
moment investors are already nervous
about the future. Compared with those
risks, writing a large check can
actually be the cheaper option. That's
why some of the biggest payouts in
business history happened after the CEO
had already left. Bob Chapek received an
exit package worth more than $20 million
when Disney replaced him with Bob Iger.
Other CEOs have walked away with stocks
worth far more than their salary because
those awards had been earned over many
years and were protected by their
contracts. Now, of course, not every CEO
leaves with a fortune. If they were
fired for fraud, misconduct, or breaking
the terms of their contract, the board
can often reduce or even eliminate those
payments. And look, the headlines
usually focus on the largest severance
packages because they're shocking, but
they're more like the exception, not the
rule. The important thing to remember is
that these payments aren't made because
the board is happy with the CEO's
performance.
>> [music]
>> They're made because public companies
value stability. They want leadership
changes to happen quickly, clearly, and
without years of lawsuits or
uncertainty. When a company is worth
hundreds of billions of dollars,
protecting that stability is often worth
far more than the cost of the severance
package itself. And that is why
companies pay their own CEOs millions of
dollars to leave. And being able to
negotiate strongly at the beginning is
what sets someone up for a successful
exit. Inside the Alex app, we've got
expert collections all about becoming a
top-notch negotiator in business and in
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