When the going gets tough, the tough are proverbially supposed to get going. Chief executive officers (CEOs) in these turbulent times are going all right. But, sometimes, it is out of the front door.
Our study on CEO tenure in turbulent times shows that new managers have about 18 months to deliver, says Ashish J. Singh, managing director of Bain & Company India. Bain is a global consultancy organisation. The Bain study has been brought out in a book titled The Breakthrough Imperative: How the Best Managers Get Outstanding Results. This deals mainly with Western companies. But it is just as applicable to companies in India because there is so much turbulence here, adds Singh.
The Bain study has enunciated four laws. These sound very simple. But not every manager seems to be able to grasp their implications. The laws are: costs and prices always decline; market position dictates strategy; profit pools dont stand still; and simplicity gets results. Says Mumbai-based HR consultant Shashi Rao, CEOs like to think they are into rocket science. But the real formula is KISS Keep it Simple, Stupid.
Several other recent studies show that CEOs are finding it increasingly difficult making themselves comfortable in the hot seat. A study released last year by strategy and technology consulting firm Booz Allen Hamilton says that worldwide nearly one in three CEOs left office involuntarily.
Booz Allen looked at nine years of CEO succession data in 2,500 of the worlds largest companies and identified two fundamental shifts in the ways corporate boards address CEO selection and oversight. First, boards are becoming less tolerant of poor performance. Second, they are increasingly splitting the roles of CEO and chairman and recruiting chairmen who have not previously served as a companys CEO. Its clearly time to say goodbye to the age of the imperial CEO, says a Booz Allen release.
Other key findings include:
• Boardroom infighting is taking a higher toll on CEOs.
• Inclusiveness is the new critical CEO survival skill.
• CEOs are staying in office longer.
• The hiring of outsider CEOs has peaked.
• CEOs who deliver below-average investor returns dont remain in office long.
• A merger-related CEO change brings a big boost to stock price, but CEO succession has a limited impact on stock price outside mergers.
• Independent chairmen are best.
• CEOs who have been CEOs in other companies earlier deliver worse returns to investors.
Its a mixed bag of findings, comments Rao. And much of it doesnt apply to our family-run businesses. Only in a rare case like the Thapar group do you get a Gautam Thapar replacing his cousin Vikram Thapar.
A more recent study by global public relations firm Weber Shandwick has found that CEO departures at the worlds 500 largest companies jumped 10 per cent from 2006 to 2007. Although many CEOs leave for ordinary reasons such as retirement and succession planning, an increasing number also leave involuntarily, says Weber Shandwick. Just as CEOs receive most of the credit when things go right, they are expected to accept the majority of the blame when things go wrong. And, as every schoolboy knows, things have been going wrong in recent times.
Incidentally, Asia-Pacific companies experienced the highest turnover in 2007 compared to other regions, losing over one in five of their chief executives. CEO turnover within Asia Pacifics most elite companies climbed 25 per cent from 2006 to 2007," says the study.
Some of the other trends were:
* More CEOs exited for non-traditional reasons; 32 per cent of CEOs left against their will in 2007 against 28 per cent in 2006.
* North American CEOs are particularly vulnerable.
* Insider CEOs are still preferred over outsider CEOs.
Wrapping things up is a report from executive coaching consultancy Challenger, Gray & Christmas Inc which says that in the calendar year so far, CEO turnover has reached the highest nine-month total ever. The CEO may not be a threatened species (you will always need someone to carry the can), but it is sure becoming a short-lived one.
Why CEOs go (%)
Reason 2008 2007
Former CEO retired 27 52
Planned succession 11 0
Former CEO stepped down 36 11
Board forced former CEO out 13 0
Permanent CEO replaced interim CEO 11 11
Former CEO resigned 2 26
Source: A study of Fortune 500 and S&P 500 companies by CE Online