Yale Case. By: Matthew LoCastro / A. J. Wasserstein
This Yale case study examines the challenges that CEOs in SF–acquired companies and small businesses face when terminating employees. While firing employees is often one of the most unpleasant aspects of leadership, it is an unavoidable responsibility. The article provides best practices, financial and legal considerations, cultural impacts, and strategies for handling terminations with professionalism and empathy.
Key themes and insights:
1/ The unavoidable nature of employee terminations
For searchers, firing employees is often an inevitable yet difficult task. Many first-time CEOs are young and inexperienced, making this a daunting responsibility. Unlike large corporations, small businesses have close-knit teams, making terminations particularly personal and emotionally challenging.
The article emphasizes that terminating employees should always be a last resort, undertaken only when performance issues persist despite coaching, feedback, and corrective measures. CEOs must develop the ability to execute this process fairly and professionally to avoid disruption, maintain morale, and minimize legal risks.
2/ The structured process of employee termination
While popular culture often depicts terminations as dramatic and impulsive, in reality, firing an employee is a gradual process that requires careful planning. The article presents best practices that CEOs should follow to ensure a smooth and just termination process:
- Hiring slowly, firing carefully – The article stresses the importance of selecting the right employees through structured hiring and training processes. Many termination issues stem from poor hiring decisions or insufficient onboarding, making it essential to invest in recruitment and training.
- Pre-termination considerations – CEOs must evaluate whether the company’s systems, leadership, or processes contributed to the employee’s underperformance. They should ask: “Did we provide the necessary support, resources, and training?”
- Clear documentation – Employee performance should be thoroughly documented, ensuring that any decision to terminate is backed by evidence of underperformance and multiple attempts at remediation.
- Coaching and remediation efforts – Performance Improvement Plans (PIPs) can be a useful tool for giving employees a structured path to improvement before considering termination.
3/ The financial and legal implications of termination
Terminating an employee involves significant financial, legal, and administrative consequences:
- Severance costs – Even when not legally required, many companies provide severance pay to ease transitions and reduce the risk of disputes. Severance packages often amount to one to two weeks of pay per year of service, adding up quickly for long-term employees.
- Legal risks – Employers must ensure compliance with employment laws (such as COBRA in the U.S.), document termination decisions properly, and avoid potential wrongful termination lawsuits, which can be costly and time-consuming.
- Operational disruptions – The cost of replacing a terminated employee is high, often amounting to six to nine months of salary when factoring in recruitment, onboarding, and lost productivity.
4/ The cultural and emotional impact of terminations
Poorly handled terminations can damage morale, lower productivity, and create distrust among remaining employees. If employees perceive firings as unfair or inconsistent, they may become disengaged, fearful, and less willing to take risks or innovate.
To mitigate this, CEOs should:
- Communicate clearly and fairly with the team about company expectations and values.
- Ensure transparency in performance evaluations and feedback.
- Reassure remaining employees by demonstrating that terminations are justified, strategic, and in the best interest of the organization.
5/ A CEO’s personal experience: learning to fire with empathy
The article includes a case study of John Yanchek, CEO of Montis Financial, who shares his journey in managing terminations.
Initially, Yanchek struggled with firing employees due to a lack of structured processes and clear performance evaluation criteria. He realized that many of his early mistakes stemmed from insufficient communication, inadequate documentation, and an overly legalistic approach.
Over time, he developed a framework for hiring and firing based on:
- Clear performance metrics (using the GWC framework: Get it, Want it, and Capacity to do the job).
- Emphasizing company core values (Discipline, Exceeding Expectations, Proactivity, Team Orientation, and Empathy).
- Leading with kindness and compassion – He found that treating terminations as a mutual decision rather than a punishment helped employees transition more smoothly.
In one case, an underperforming employee at Montis was eventually let go but was supported in finding a new job where they could succeed, resulting in a positive outcome for both the company and the individual.
6/ Remote work challenges and modern offboarding best practices
With the rise of remote work, terminating employees virtually presents unique challenges.
The authors suggest:
- Using video calls instead of emails or phone calls for a more personal approach.
- Being prepared for recorded meetings – Employees may record termination meetings, making clear and professional communication essential.
- Managing system access promptly – Companies must ensure immediate revocation of credentials to protect sensitive data.
Additionally, the article highlights the importance of a thorough offboarding process, ensuring that employees return company assets, complete final paperwork, and receive necessary resources for their transition.
7/ The role of professional support (HR and legal advisors)
For CEOs without extensive HR experience, working with employment lawyers and Professional Employer Organizations (PEOs) can help streamline the termination process. PEOs provide:
- Legal compliance guidance
- Separation agreements and dispute resolution strategies
- Best practices for minimizing risks and maintaining fairness
Using external HR support can protect companies from legal pitfalls and ensure that terminations are handled professionally and ethically.
Conclusion
Employee terminations are a difficult but necessary responsibility for CEOs, particularly in SF–acquired businesses where leadership transitions often bring organizational restructuring. The key takeaway from the article is that firing should always be a last resort, pursued only after exhausting all possible alternatives for improving performance.
By following structured procedures, leading with empathy, and maintaining fairness, CEOs can ensure that terminations minimize legal risks, maintain morale, and ultimately benefit both the company and the departing employee.
While no CEO enjoys firing employees, handling terminations professionally, transparently, and with compassion helps build a stronger, more resilient company culture and positions the organization for long-term success.
