According to TheRegister.com, UK ISP Zen Internet has lost an appeal against a ruling that it unfairly dismissed former CEO Paul Stobart, with the Employment Appeal Tribunal upholding the original finding of unfair dismissal. The case centered on Stobart’s 2023 departure, which the company initially described as retirement but the former CEO contested as unfair dismissal. Despite the tribunal agreeing that Stobart could have been fairly dismissed for capability reasons due to missed financial targets, Zen failed to follow its own procedures, leading to the unfair dismissal ruling. The company’s financial performance showed consistent struggles, with profits sliding from £378,000 to £320,000 in recent accounts despite turnover increasing from £110 million to £121 million. This legal setback comes as the case returns to the Employment Tribunal for further consideration of compensation aspects.
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The Procedural Pitfall That Cost Zen
The core issue in this case isn’t whether Stobart underperformed—the tribunal acknowledged the “capability grounds” were valid—but rather how Zen handled the dismissal process. This represents a classic corporate governance failure where companies focus on the “what” (poor performance) while neglecting the “how” (proper procedures). The appeal judgment specifically noted that the original tribunal “ignored the period from 24 February 2023 when the concerns about capability had crystalized,” suggesting Zen had ample opportunity to follow proper processes. This procedural misstep is particularly damaging for a company that publicly announced ambitious growth targets but failed to establish robust performance management protocols to match those ambitions.
The Founder’s Return: Savior or Setback?
Richard Tang’s return as CEO following Stobart’s departure represents a fascinating case study in founder dynamics. When founders return to rescue their companies from professional managers, it often signals deeper organizational issues. Tang’s documented “anxiety” about profitability suggests either unrealistic expectations about growth timelines or insufficient support for the incoming CEO. The telecommunications industry, particularly the competitive UK broadband market, has seen margins compress dramatically in recent years, making the original £250 million decade-long target increasingly challenging. Founder-CEO transitions require careful planning and realistic timelines, something that appears to have been lacking in this succession strategy.
Broader Implications for UK Telecom Sector
Zen’s situation reflects wider challenges in the UK telecommunications sector, where mid-sized ISPs face intense pressure from both giant providers and disruptive newcomers. The company’s profitability struggles despite revenue growth mirror industry-wide margin compression as infrastructure costs rise and customer acquisition becomes more expensive. What makes this case particularly noteworthy is how internal governance issues compounded external market pressures. Other UK ISPs watching this case will likely review their own executive performance management and dismissal procedures to avoid similar legal entanglements that distract from core business challenges.
The Polkey Principle and Compensation Complexities
The appeal court’s decision to set aside the original Polkey finding adds another layer of complexity to this case. The Polkey principle, which can reduce compensation when an employee would have been dismissed anyway through proper procedures, now requires re-examination by the Employment Tribunal. This means Zen faces not only reputational damage but potentially significant financial liability. The company’s initial characterization of Stobart’s departure as retirement rather than dismissal may now work against them in determining appropriate compensation, as it suggests the company wasn’t transparent about the reasons for his exit from the beginning.
Leadership Transition Lessons for Growing Companies
This case offers critical lessons for companies transitioning from founder-led to professionally managed structures. The ambitious growth targets set when Stobart joined—transforming Zen into a £100 million business within three years—created unrealistic expectations that may have set the stage for eventual conflict. Successful leadership transitions require not just finding the right executive but establishing clear performance metrics, realistic timelines, and robust governance procedures. The fact that both tribunals found procedural failures despite acknowledging performance issues suggests Zen’s board and governance structures were inadequate for managing a high-stakes CEO transition in a challenging market environment.
