Blogs & Comment

When scandal hits, some CEO exits are more graceful than others

If worse comes to worst, conscientious leaders need to think about how they’ll depart the top job with minimal drama

Former Avid Life Media CEO Noel Biderman, pictured in 2014

Former Avid Life Media CEO Noel Biderman, pictured in 2014. (Eugene Hoshiko/AP)

Noel Biderman had a rough summer. His Toronto-based business, Avid Life Media (home of infidelity dating website Ashley Madison) found itself the subject of a massive international scandal when a hacker collective illegally breached the site and began leaking confidential user data. For the company, the fallout was as quick as it was damning. The prurient nature of the business and the sheer scope of the hack garnered the incident far more negative media coverage than corporate data theft typically receives. And since Avid Life had long assured customers that their personal information was safe, ticked-off users wasted little time in launching a nine-figure class-action lawsuits.

So Biderman,—the self-described “King of Infidelity”—who just last year told PROFIT 500 researchers that “there’s no such thing as bad attention for our business”—did something that would be unthinkable to most entrepreneurs: He fired himself. In a statement released in late August, Avid Life announced that Biderman had decided, by “mutual agreement” with the company, to abandon his job as CEO. Assuming it is in fact true that Biderman left of his own accord, at least in part, he deserves credit for it.

To understand why, contrast Biderman’s actions with those of American Apparel founder and ex-CEO Dov Charney, Biderman’s peer in the small but notorious fraternity of bad-boy Canadian entrepreneurs.

Dogged for years by accusations of despicable behaviour (including charges of sexual harassment of subordinates), Charney was suspended and later fired in 2014, when the struggling company’s board finally decided the CEO’s actions were costing too much to be tenable. It’s been the opposite of a clean break. Charney has spent most of 2015 lobbing lawsuits related to his dismissal against his former employer, its board members and the hedge fund that took it over after his departure. The legal to-and-fro has cost American Apparel millions of dollars. In its most recent earnings report, the company stated that it might not have enough cash to sustain operations, and sure enough in early October it filed for bankruptcy.

When you’ve conceived, launched, grown and sustained a successful enterprise, you get attached in a way that a hired-gun CEO never can, not quite. The idea of abandoning a business in distress is akin to leaving an injured child to fend for herself: It goes against deep, fiercely protective instincts.

Such fealty is mostly a good thing, and it’s what has driven countless entrepreneurial success stories. But it also has a habit of skewing one’s perspective, especially when pride and ego are involved. The CEO can start to see himself as both indispensable (there’s no way the business could survive under anyone else’s guidance) and exceptional (normal rules don’t apply to him). So he’ll stay put, not realizing his own culpability in the very problems he is convinced only he can solve.

Avoiding this fate requires objective self-evaluation—not a habit to which most entrepreneurs default. Solo soul-searching can help you see yourself the way others do, but it’s generally easier—and more reliable—to draw that information from external sources, like a board of directors, an advisory panel, anonymous reviews from employees or a mentor you trust to tell it to you straight. Whatever the method, the goal should be to assess your actions like any manager would. Ask yourself: Would you fire someone else for your kind of performance?

Unlike Charney, Biderman didn’t ignore the clear answer to that question. His departure from Avid Life represents a tacit acknowledgment that things went very badly under his watch, and that as CEO, he bears ultimate responsibility for it. He may not have left with dignity, exactly, but there was a certain stoic integrity to his choice to go without melodrama. Whether Avid Life as a business can recover is unclear; the company claims to have attracted “hundreds of thousands” of new customers since the hack. But at least it won’t be saddled with a leader who refuses to recognize reality.