(FORTUNE Magazine) – WHAT IS THE BEST way for a board of directors to fire a company's chief executive officer? That's easy: quick, quiet, and cheap. In this imperfect world, though, it rarely works that way. Allegheny International was rocked by turmoil for months before Robert Buckley departed. BankAmerica replaced Sam Armacost amid headlines normally reserved for a Third World coup. And CBS got Tom Wyman to pack up only after agreeing to pay him some $4 million plus $400,000 a year for life. For CEOs, these are days of living dangerously. With raiders so active and stockholder suits against directors on the rise, the subject of how and when to get rid of a slumping chief executive officer has gripped boardrooms. Directors are becoming more analytical, more sophisticated -- and more nervous about subpar performance. Hardly a week goes by without some corporate sequoia crashing to earth. The clamor over celebrated sackings heralds a broader reality. ''The average tenure of the chief executive is going down,'' says Professor Thomas Whisler of the University of Chicago's Graduate School of Business. He adds dryly, ''I don't think that is because he is appointed at a later age or is retiring earlier.'' Whisler has written a wise and witty book for board members titled Rules of the Game. His last chapter is called ''Flushing the CEO.'' He says that some readers objected to the verb but found the book useful. Before a board decides how and when, it has to decide why -- and that means reviewing its expectations of the potential victim. A dissatisfied board has to ask: What did we expect of this guy; where did he fall short? There are four major reasons for replacing a CEO, according to E. Pendleton James, former personnel director for the Reagan White House who now owns an executive recruiting firm and is on several boards. Loss of earnings is one, but not always the most crucial. Pen James ticks off the others: ''Most important, dishonesty and malfeasance. Second, dissatisfaction within the corporation that has reached such levels that the board has to get involved. Third, personal or social behavior by the CEO that is embarrassing the corporation and through it members of the board.'' James stresses, as did many others interviewed for this article, that when a board evaluates a chief executive's performance, ''there are no rights and no wrongs, only grays.'' A chief executive's departure is, like divorce, evidence of a relationship gone terminally sour. What that relationship should be varies from company to company, but there are certain givens. They sound a little like marriage vows. Perhaps foremost is candor. ''It is a partnership in which each side is completely open with the other,'' says J. Peter Grace, who has run W.R. Grace for 45 years and is a member of six other boards. ''No secrets and no fooling around. If you give any director the slightest feeling that you're not telling the whole story, that's when trouble starts.'' Wily veteran Grace surely keeps a few tidbits from his amiable board, but Lord help the boss who goes too far. If the board expects honesty, the CEO has every right to expect it to stay ! out of his toupee. A familiar complaint about boards is that they try to run the company, forgetting that they hired the chief executive to do the job. Drew Lewis, former Secretary of Transportation who is now chief operating officer of Union Pacific and is scheduled to move up to CEO this October, says that he hopes to use his board ''as a long-range policy guide and short-range policymaker -- not to get involved in day-to-day operations.'' Lewis gives an example: ''We're looking at the hazardous-waste-disposal business, and I think the board should be critical of that, in the sense of evaluating it. They should get their shots at it before we hit the point where we name an acquisition and all of a sudden we're in it.'' And if the board has strong reservations about this or any other management idea? Says Lewis: ''Then I think you back off. Not because you're afraid of the board, but you hope you have people on the board who are as capable as or more capable than you are, and you have to listen.'' A BOARD IS not limited to saying yes or no; a maybe can be just as helpful. Lewis is on the American Express board, and at a meeting earlier this year CEO James Robinson III proposed going into business with the Japanese. ''He threw out the idea,'' Lewis recalls, ''and we sort of demolished it the way it was presented. He brought it back at the next meeting, somewhat modified, and came to the third meeting with a plan we were all basically happy with.'' Subsequently Amex's Shearson Lehman subsidiary sold a 13% stake to Nippon Life. ''I think the board made a real contribution,'' Lewis says. Self-confident chief executives tap the expertise of individual directors all the time. Donald Perkins, who serves on ten boards (including that of Time Inc., publisher of FORTUNE), says of his years as head of Jewel Cos., a diversified retailer, ''I always looked at the board as a very inexpensive way of getting very useful information. People work as directors for fees they wouldn't think of working for as consultants.'' What Tolstoy said of families is true of directors. All happy boards resemble one another; every unhappy board is unhappy in its own fashion. And yet there is probably one overriding explanation for a board becoming so unhappy that it fires the chief executive: Surprise. ''That is the thing I hate most as a manager or as a director,'' says Lewis, a member of four boards, ''because if you get a good surprise, you know someday you're going to get a bad one.'' David J. Dunn, a managing partner of Idanta, a Fort Worth venture capital firm, has sat on the boards of 20 companies. Most were start-ups and a few have grown to impressive size, including Prime Computer with 12,000 employees and nearly $1 billion a year in revenue. He remembers a company whose management went underground when serious problems developed in a new high- technology product line. ''They were dishonest with outside board members,'' he says. ''But worse than that, they were dishonest with themselves. That meant they really could not cure the problem.'' The most successful bosses that Peter Grace has known are ''more out front when things go bad than when they're normal.'' He remembers a Citicorp board meeting some years ago: ''The bank had made a big mistake on foreign exchange. Walt Wriston ((then chief executive)) came into the room with a big chart titled 'We Blew It in Belgium.' '' The board was disarmed by his frankness. Recent corporate history has produced no better example of surprise as a major factor in the undoing of a chief executive than the drama at CBS. Chairman Tom Wyman had been through a lot. He had fought off eight takeover attempts, including Ted Turner's highly publicized raid. CBS ratings and earnings were down, and Wyman's management style was the target of constant growling from two powerful board members, William Paley and Laurence Tisch, who between them owned 33% of the stock. Despite these woes, Wyman was popular with most directors. He stroked them skillfully. He had made some astute financial decisions -- including selling off the toy and musical instrument businesses at the right price and the right time -- which reflected well on them. And many board members felt that Paley, founder and longtime boss of the broadcasting giant, was unfair in his criticism. Then Wyman sprang two surprises, one wounding, the other fatal. The first was at the July 1986 board meeting. Wyman had to confess that second-quarter earnings would be $100 million lower than he had forecast; the turnaround he was sure would happen had not. Wyman's support on the board began to erode, but by all accounts he could have survived except for an astounding development at the September meeting. The first order of business, as one board member recalls it, was ''a statement by Wyman asking authorization to explore a proposal to merge CBS and Coca-Cola.'' According to several reports, the board was stunned. Wyman had told a few directors that he was talking to Coca-Cola, but according to the board member it was ''vague, nothing tangible, just musings.'' After resisting takeover, the CBS board thought it had made clear to Wyman that it wanted the company to remain independent. Wyman's suggestion ''came as a shock to most of us,'' this director says. ''There was an outcry from the board. Tisch and Paley were against, of course, but so were the others. Wyman should have been able to sense immediately that his plan was in trouble. He said to the board, 'You should thrash this out among yourselves.' He left the room and never came back. It became clear that we had lost confidence in him.'' By nightfall two directors were in Wyman's office working out his termination agreement. Why did Wyman take such a gamble? To save his job, maybe. One cynical suggestion was that Coca-Cola had assured him he could remain at the top of the merged corporation. The board member is kinder. He thinks Wyman was suffering from ''combat fatigue.'' In any case, if Wyman had carefully prepared the board for his merger idea, he might have weathered its rejection. But his surprise move left the directors with no choice. Among the reasons for firing the boss, dishonesty is probably the rarest. David Dunn, the Texas venture capitalist, recalls the chief executive of a small company who was charging secret trips for job interviews to company expense. His company had gotten into trouble after the 1973 oil embargo disrupted its supply of petroleum byproducts. Says Dunn: ''The guy was so demoralized that he lost faith in his own ability, and went from bad to worse. We had a board meeting, and I brought up all the facts and then made a motion that the man be fired. He was so shocked that he voted for it himself. I said, all in favor say aye, and he said aye.'' Flamboyant behavior is seldom a factor in changing CEOs. Still, Robert Buckley, who left Allegheny under fire a year ago, was accused in shareholder suits of financing his lavish lifestyle with corporate funds, among other charges. Buckley denies wrongdoing. A DIFFERENT KIND of misbehavior figured in another closely followed corporate upheaval -- the departure of Steven Jobs from Apple Computer, the company he founded. The conduct was private, not public. It took place within the company and inside the boardroom. Those who know Jobs, now 32, agree that in addition to being an industry visionary, he is impatient, prideful, and often obnoxious. In 1983, Jobs and his board agreed that Apple needed more professional management, and they lured John Sculley away from the presidency of the Pepsi-Cola division of Pepsico. Sculley settled in as president and CEO of Apple. Jobs remained chairman. Within two years they were at odds. The issues were complicated. Jobs may have been attracted by Sculley's prudent management skills, but he balked at any interference with the Macintosh group that Jobs was then running. Sculley naturally wanted to have some say about a potentially hot new personal computer. Jobs reacted by blaming Sculley for Apple's problems and tried to topple him. When the confrontation reached the board, the founder lost. His 1985 resignation shook Silicon Valley like an earthquake. BUT THERE WAS more to it than a disagreement over lines of authority. Jobs commanded enormous loyalty from the people who worked directly under him, but for years he had neglected his board. Sculley did not make the same mistake. ''Steve simply had not built any equity with the directors,'' says a computer industry veteran who observed the process at close hand. ''He was arrogant and inflexible and independent. Board members like Henry Singleton ((founder and chairman of Teledyne)) and Art Rock ((a venture capitalist)) are older guys who are used to going into boardrooms and having some respect paid them. Instead they had this young, smart-ass kid who over the years had been shouting, screaming, throwing tantrums. The Apple board didn't particularly like Jobs. When it came to a point of either Jobs staying or leaving, the board was not in favor of him staying. Obviously Steve feels very hurt, but if anything, he did it to himself.'' Among all the reasons for replacing a CEO, poor earnings are the most obvious. But they are often a symptom of other, less treatable corporate ailments. Measuring a decrease in returns or market share is pretty simple bookkeeping; figuring out why is the hard part. ''Directors are smart enough to know that usually there are no clear answers,'' says Professor Whisler. He suggests skepticism when a company concentrates on losses in explaining why the boss is leaving. Last year BankAmerica Corp. reported a disastrous second quarter just before it shoved out Sam Armacost. ''The board simply came up with a reason,'' Whisler says. ''That's what a board seizes on.'' Security analysts say BankAmerica has lots of problems, including too many bad loans, too many small and expensive branches, and a back office that struggles with outdated systems because management -- including the one before Armacost -- failed to make the necessary investment in technology. One corporate crisis no director can afford to ignore is revolt or dissension among subordinates. ''The problem can be quite subtle,'' says David Dunn. ''I've had four or five instances where board members found out only after other officers came to them and said, 'Hey, we're going through a disaster!' '' In one company three vice presidents separately petitioned the board to do something about their CEO. Such rebellion is a matter of high drama. Directors have to feel certain that a critic is not simply gunning for the CEO's job. If subordinates go behind the boss's back, but fail to convince the board of their complaint, they can find themselves cleaning out their own offices. J. Walter Thompson was the scene of such an upheaval six months ago. Joseph O'Donnell, chairman of the ad agency, wanted to take the company private and oust JWT Group chairman Don Johnston. The board decided O'Donnell's behavior was ''grossly inappropriate,'' and he was history. Employee unhappiness was an important factor when Contel, the $3-billion telecommunications firm based in Atlanta, switched chief executives in April. That, at least, is the story told by Contel's lively if cantankerous chairman, Charles Wohlstetter, 77. One of the founders, he has been a major force in the company since it began in 1961. He is not known as an easy man to work for. Founders rarely are. A few years ago he stepped down as chief in favor of a younger man, although Wohlstetter had reservations. ''I wanted to see if he was a decision-maker and whether his elevator went to the top floor,'' he says. In the chairman's view it did not get that high, and the man moved on. The next chief executive was John Lemasters, 51, appointed in 1985. He had been with Contel only a year, running a small subsidiary. A cultural collision loomed swiftly. ''This was the first time we had reached outside our environment for a chief executive,'' says Wohlstetter. ''Within six to nine months, it became apparent that he was not schooled in the same university of experience that our people were used to.'' What did that mean? ''They were used to a free and open society, with access to everybody in the organization and a frank exchange of ideas. Our management was people oriented.'' And Lemasters? ''John was what I would call an American Management Association type,'' says Wohlstetter. ''You know, this is problem A, so let's look at a textbook written in 1928 and see what the guy has to say about it.'' Skirmishing between CEO and chairman flared into warfare over a proposal to merge Contel and Comsat, the communications satellite company set up by Congress. Wohlstetter at first approved but then began to find fault with the plan. One reason suggested by industry observers is that his control of the new combined company -- which by law had to be called Comsat -- would be diminished. Wohlstetter denies it; Lemasters refused to be interviewed. In any case, when Comsat was hit with a surprise demand by the Federal Communications Commission that it refund $62 million to satellite customers, Contel canceled the deal. ''It would be wrong to think of Comsat as any more than the final straw,'' Wohlstetter says. ''There was a difference in style between John Lemasters and Contel. He was affable with me and the board and very rigid with the people under him. They reacted very unfavorably. We had a morale problem of serious proportions.'' The day Contel voted against the merger, according to Wohlstetter, ''John said in effect that a sense of faith in him had been lost. What he wanted to do in all friendship was work out a separation agreement. He got no argument.'' Lemasters, says a friend, saw the guillotine descending. CEOs usually do, Drew Lewis thinks. ''Even if the guy acts like he is surprised, I don't think he is. I guarantee you that if I get dismissed at Union Pacific, I'm going to know it before the board knows they should do it.'' This summer the Allegis board suddenly turned on Chief Executive Richard Ferris and forced him to resign. That was a spectacular exception to normal board behavior. Directors tend to move slowly, first because they want to be seen as humane and second because they are acknowledging a mistake in their judgment. Group dynamics are at work. Peter Grace figures the average board is made up of some members who are ''super,'' some who are ''influenceable,'' and ''one or two SOBs.'' When a CEO's troubles begin to mount and ''things start deteriorating,'' Grace finds, ''the SOBs get the smell and start working on the others.'' Grace says the situation reminds him of turkeys, of which he once owned 40,000. ''When one turkey starts to bleed, the other turkeys swarm all over him. It's the same with people.'' ! AS GRACE points out, dissatisfaction with a CEO usually originates with a few board members, maybe two or three; they discuss it with others, discreetly at first, then more boldly. Several directors may meet for dinner on the night before a board meeting, ostensibly for fellowship, actually to poll the jury on the death sentence. Because he has been involved in so many start-ups, in which management changes are frequent and abrupt, venture capitalist Dunn is a veteran at the process. He says he has fired 15 presidents over the past 20 years: ''It is traumatic and painful. Guys who get fired or are asked to resign are not bad guys. They are hard workers who have tried to the best of their ability to do a job and haven't done it, or have done it for a while and then the job outgrew them.'' Once the decision is made, or when dissident directors feel they have a majority, speed is recommended by everyone who has endured this melancholy event. Says Dunn: ''Decent, well-motivated people tend to wait too long. When you finally do it, it really needs doing.'' Turmoil hurts the company's reputation, the value of its stock, and the surviving executives. ''Any sensible person, CEO or director,'' notes Peter Grace, ''will go to great lengths to avoid that. A line from the old song, 'Thanks for the Memory,' describes how it should be handled: 'No tears, no fuss, hooray for us.' '' Professor Whisler remembers a classic example of the opposite: Genesco's replacement of CEO W. Maxey Jarman in 1973. ''The company cafeteria was next to the boardroom,'' Whisler says. ''It was full of executives who said that they would resign if Jarman was not fired and reporters standing around three deep watching this perfectly unbelievable scene.'' How the decision gets transmitted to the teetering CEO depends on his relationship with the board. Whisler recalls a company whose entire board invited the man to lunch and over the entree said, Sorry, this is it. Usually the chairman and one or two directors closest to the chief deliver the news. David Dunn once presented a doomed CEO with two press releases. ''The first said he quit, the second said he was fired. I told him we were going to hand out one of them the next day. He chose to quit. I could honestly say, honestly in quotes, that the board had not asked him for his resignation.'' Companies will frequently tax the ingenuity of their public relations staffs to come up with a plausible explanation for the boss's disappearance. Drew Lewis believes these little fictions are necessary. ''There's a certain courtesy in business,'' he says, ''because when you fire somebody, a vice president or the CEO, a bit of your own credibility goes out the door with him.'' No matter how disappointed, angry, or even humiliated a chief executive may be over losing his job, he almost without exception holds his tongue. No self- serving leaks, no TV interviews, even though his departure may be big news. How come? Pride, character, toughness -- and money. Whether it's called a golden parachute, a golden handshake, or simply a termination agreement, the sometimes astonishingly generous payoff is, as Peter Grace puts it, ''to keep him happy -- and quiet.'' Grace thinks Armand Hammer, chairman of Occidental Petroleum, ''must be the best in the country at that because he's fired so many presidents and they never have anything to say. You ask Bob Abboud ((Occidental COO from 1980 to 1984)) and all he says is, 'Oh everything's great.' How much did he get?'' (He got nearly $3 million.) BEFORE DISCUSSING the departure of John Lemasters from Contel, Chairman Charles Wohlstetter bluntly explained: ''You have to understand that there are certain constraints on both of us in the separation agreement we drew. It's common practice to sign off with people where you agree, 'I won't knock you, you don't knock me.' It avoids conflict and bitterness and finger-pointing.'' At major corporations, these severance packages include salary, stock options, fees, and insurance and medical policies. When the numbers leak out or are revealed in the annual report, employees are shocked and stockholders dismayed (sometimes to the point of suing the board). Directors by and large take an Olympian view of these settlements. Even David Dunn, who irascibly calls them ''bribes to keep your mouth shut,'' thinks that ''if a guy has done a hell of a job and the company has outgrown him, you'd be kind of brutal to throw him out into the street. You should try to take care of him and lubricate his passage to another job.'' Board members who are or have been chief executives themselves are -- unsurprisingly -- particularly empathetic with another member of the club. ''You have a certain lifestyle as a CEO,'' says Drew Lewis. ''You belong to clubs, you entertain, you have the big house, the lawn service, the pool service; you do things differently. The least a chief executive who gets fired should expect is two or three years to get his feet on the ground. You take a guy who is making $250,000 to $400,000 a year, and he's been living on that for ten years; he's got one heck of a problem when he tries to live on $100,000. You've got to give him some kind of transition out of it.''

Another argument for generosity is to avoid discouraging potential successors. ''If you rough up the CEO and kick him down the stairs,'' says Whisler, ''you can create a situation that scares the hell out of any possible candidate.'' Headhunter Pen James admits that ''such candidates will question me very intensively. Nobody wants to be another fallen hero.'' As the ranks of vanished chief executives grow, the question inevitably rises: How do they make out after being fired? Is there life after the executive suite? Generalizations are difficult, but most ex-CEOs can be described as financially comfortable and professionally miserable. They are usually on the prowl for other jobs at the top, sometimes with success -- although two major headhunters, who don't want to be named, say the victim of a noisy corporate upheaval last year is virtually unemployable at the moment. He is still being blamed for the serious troubles his company continues to suffer under the new management. Steve Jobs, though said to be ''very bitter,'' has started a new computer company called Next that is aimed at the educational market. Tom Wyman has lost 15 pounds since he left CBS, plays a lot of golf and tennis, continues to serve on the boards of several corporations, and is, says a friend, ''his low- key, amiable self.'' But from his own experience with former CEOs, Drew Lewis draws a gloomy picture. ''About half of them are devastated and never recover,'' he says. ''There is also the age problem. They are usually 55 to 62. At that point you really don't want to report to an executive vice president somewhere.'' Some of these casualties move out of management entirely. ''A lot of them,'' says Lewis sadly, ''become consultants.''