Target's executives know the feeling. Photographer: Tim Boyle/Bloomberg
Target's executives know the feeling. Photographer: Tim Boyle/Bloomberg

I once heard a Russian fairy tale about a family that is riding through the woods in a troika -- a three-horse sled. Alas, they are set upon by wolves, and the husband urges his horses to their maximum speed. As the wolves gain on them, he grabs his servant and tosses him to the wolves behind them in the hopes of simultaneously lightening the sled and slowing the wolves. Which works . . . for a while. But eventually the wolves are upon them again, and so he pulls his wife to him, tenderly kisses her and tosses her, too, off the sled. The wolves stop to eat, then reappear behind the troika, close and getting closer. At which point the driver realizes it is just him and his young son, the heir to his lands . . .

This is a very good metaphor for companies in crisis.

“Throw someone to the wolves behind the sled” is a favorite model for handling corporate disasters. After Target Corp. lost 40 million credit card numbers to a hacker attack on its point-of-sale systems, Chief Information Officer Beth Jacob resigned. This wasn’t quite enough, however, to restore the company’s share price to its former glory:

And while sales have recovered, they’re not much to write home about:

So today, Chief Executive Officer Gregg Steinhafel announced that he, too, would be stepping down. “Stepping down” being a euphemism for “getting out before they fire you.”

This is not a logical response to some sort of dramatic malfeasance in the hacking affair. Reading through Bloomberg Businessweek’s excellent piece on the hack, you can’t help but be amazed at the extraordinary incompetence that led to the loss of so many credit card numbers. But it’s hard to chalk it up to Steinhafel’s fault; outside of technology companies, the CEO is not expected to be a technical expert, and it was hardly his job to be down in the trenches, making sure that midlevel information-technology employees acted on urgent e-mails from their security contractor.

Nor can it be said that Target needed to act to save its share price -- it’s off from December, but not that off, and its May sales figures are unimpressive, but they’re not that much worse than last year’s. Target is suffering from changes in the market, as well as competition from Amazon.com Inc., neither of which are Steinhafel’s fault. Besides, the share price is actually down so far today. All of which would be in line with research on CEO firings:

But does firing a CEO pay off, or do most companies end up like Kmart, with little or nothing to show for bringing in a new leader? I’ve been studying that question over the last few years, and what I’ve found is not encouraging. Most companies perform no better -- in terms of earnings or stock-price performance --after they dismiss their CEOs than they did in the years leading up to the dismissals. Worse, the organizational disruption created by rushed firings -- particularly the bypassing of normal succession processes -- can leave companies with deep and lasting scars. Far from being a silver bullet, the replacement of a CEO often amounts to little more than a self-inflicted wound.

The blame for the poor results, my research indicates, lies squarely with boards of directors. Boards often lack the strategic understanding of the business necessary to give due diligence to the CEO selection process. Consequently, they rely too heavily on executive search firms, which are even less informed about the business than they are. Concern over restoring investor confidence quickly -- rather than doing what’s right for the company -- drives the selection process. And board members’ ignorance about the factors that drive company performance undermines their ability to provide strategic oversight after the CEO is dismissed. While boards have become accustomed to firing CEOs, they have not yet become adept at making the dismissals pay off.

Typically a CEO gets fired not because the board has thoughtfully and deliberately concluded that it’s time for a change at the top but because investors, concerned about poor performance, demand a change. Board members, who have little idea how to address the underlying problems that got their company into trouble in the first place, seek to appease investors in the short term by handing them the CEO’s head on a platter. But firing a CEO is not just a bad solution to a complex, long-term problem. It is also surprisingly ineffective at generating short-term gains.

Nonetheless, when you’re in the troika and the wolves are pulling even with the sled, companies seem to find it hard to think too clearly. And so, a lot of servants get thrown off the sled.

To contact the writer of this article: Megan McArdle at mmcardle3@bloomberg.net.

To contact the editor responsible for this article: Brooke Sample at bsample1@bloomberg.net.