Corporate board members may want to give a little more thought to how they might try to remove a popular CEO after Better Home & Finance Company founder Vishal Garg recently convinced shareholders to return control of the company to him after he was ousted by the board in August. The board of Better, a publicly traded digital mortgage lender, had removed Garg as CEO as the company’s valuation had fallen from $7.7 billion in 2021 to around $200 million this summer.

After being forced out, Garg quickly mounted a campaign to obtain written consent from 51 percent of shareholders with voting power to remove the directors who forced him out and restore him to power. According to a press release, the board members who ousted Garg in August were themselves removed from the board in late September when, “The final certification from the independent inspector of election confirmed that shareholders representing 52.02 percent of the Company’s outstanding voting power supported removing each of the five incumbent directors: chairman Harit Talwar, Interim CEO Daniel Lewis and directors Arnaud Massenet, Bhaskar Menon and Prabhu Narasimhan.”

To attain this unlikely reversal, Garg appealed directly to shareholders and was able to overcome a bitter battle with the five former board members. Additionally, he overcame negative recommendations about his plan to regain control of the company from respected proxy advisory firms Institutional Shareholder Services and Glass Lewis. During his campaign, Garg presented a “90-day plan” for the company’s turnaround that has bolstered investor confidence which includes:

• Restructuring the board by reducing it from nine to five members, and appointing Bing Gordon, the co-founder of Electronic Arts and chief product officer and advisor at Kleiner Perkins who adds experience building consumer technology businesses, and bringing back former Better director Sarracino, the founder of Activant Capital, a $1.45 billion venture capital fund.
• Appointing an interim CEO who has expertise in mortgage origination, servicing and corporate growth strategy.
• Improving operational efficiency and revenue production by hiring an advisory firm to streamline operations while also expanding AI-platform partnerships and HELOC production.
• Complete the sale of its UK banking operations.
• Begin the first stages of a $30 million stock buy-back program.

Garg was also careful to make it clear that he was not coming back to the company as CEO. According to the press release, “Garg will serve as head of product, platform and innovation, working closely with the incoming Interim CEO and executive team.”

The situation at Better illustrates two critical issues that corporate board members need to keep in mind as shareholders appear even more hyper-sensitive to drastic declines in company stock price:

1) Both the board and CEO are responsibility for a company’s growth prospects, and either could be sent packing if investor confidence is lacking; and

2) Shareholder engagement and consultation might be more critical in removing a popular sitting CEO than some corporate directors might want to acknowledge.

While these two issues may not affect every company that experiences a rift between its CEO and board of directors in the same way, there is a possibility that corporate boards members may need to understand that in the future it might be strategically advantageous to share decision-making power and influence with shareholders more often. Corporate board members might even want to re-evaluate the process their board uses when attempting to remove a sitting CEO.  Some questions for boards in the aftermath of the battle at Better:

What is the Board’s process when handling sharp disagreements with the CEO and management? Handling disagreements professionally and internally is an important part of maintaining investor confidence. Public clashes between the CEO and board rarely serve anyone well. How strong is the relationship between the board and management? Are disputes decided by data or allegiances? Is management giving the board enough information to make sound decisions, and is there willingness to bring in data from outside sources? Who gets the final say and why?

Does the board always value shareholder engagement or only when disputes with management arise? Let’s be clear, the board should always maintain positive relationships with the largest shareholders because investor insights are invaluable when disputes arise. Removing a CEO without shareholder approval isn’t advisable. It may be time to re-evaluate how the board communicates with shareholders about strategy. Becoming more familiar with the thinking of key shareholders may help directors formulate future strategic moves that can convince management to side with the board. Shareholders could also convince the board that opposing management is not the best move.

What will being involved in a nasty public feud with a powerful CEO mean for the board’s reputation? Sometimes directors must make decisions that protect their integrity. Being a member of a corporate board that allowed a company to go under might have a negative impact on a director’s career. Additionally, being seen as a board member who rubber stamps a CEOs decisions might reduce opportunities to join other boards in the future. How a director operates during public disputes can have positive or negative impacts on their reputation. Choose wisely.