Sailing too near the wind

United Tech shows way for other company boards

Like company bosses themselves, boards sometimes think chief executives are indispensable. Not at United Technologies. Late last month, Louis Chenevert stepped down unexpectedly. It turns out he was spending too much time thinking about the construction of his yacht and other personal matters. Kudos to the company's board for letting him go.

The directors had a strong in-house replacement at hand in Gregory Hayes. That ensured that investors barely blinked at the changeover at the top of the $100-billion UTC, which makes Sikorsky helicopters and Pratt & Whitney jet engines, among other products. The main point, though, is that lead independent director Edward Kangas, now chairman, had enough courage and support from his fellow board members to challenge the CEO.

Many boards only bring themselves to oust a company's top executive - especially one who's also chairman, as Chenevert was - when they are besieged by disgruntled investors and hounded by inquiring reporters. Kangas and his colleagues, in contrast, took the initiative. The Wall Street Journal reports that some senior managers and directors felt Chenevert was becoming more and more distracted. According to the newspaper, the final straw may have been a side trip the UTC boss took to Taiwan to check on the construction of his yacht.

Getting financial incentives right isn't sufficient. Chenevert's reported compensation for 2013, after all, was $20 million. That should be enough to keep anyone focused. Separating the chairman's job from the CEO's is one way companies can help ensure that a chief executive remains committed. The title of chairman intuitively confers that kind of responsibility. The UTC example shows that a properly empowered lead director can also do the job. Either way, it's a lesson for other boards in the importance of taking the lead on governance.