Friday, 1 January 2010

Don't sack the CEO !

What would you say to a job that was one of the riskier jobs in the world – the chances of being sacked is high, and its very unlikely that you would survive 10 years. Not appealing, is it ? Welcome to the job titled the CEO.

In the UK, the FTSE 100 is the index that covers the top 100 listed companies. As the decade ended, only 16 of the CEOs who were there in 2000, were still there in 2010.

Heading that list is an illustrious name, Sir Martin Sorrell, the Chief of WPP, the global advertising agency. 25 years as CEO; he was the founder of the agency and still its head. And there are a few legends – Sir Terry Leahy, the boss of Tesco, Sir John Rose, the chief of Rolls Royce and only one lady – Marjorie Scardino, the head of Pearsons. But otherwise, most CEOs who were there in 2000 have got the boot.

The job of a Chief Executive, is obviously a crucial one in any company. The leader must stay for a reasonably long term, to be able to provide a meaningful direction for the company. Often the contribution of a CEO can only be seen in the longish term. An ideal tenure would be for 8 years or so.

But the capitalist system, as we have evolved it, is incredibly short term focused. Next quarter is all that seems to matter. Boards and shareholders expect instant performance from the CEOs, preferably in two quarters. If by three quarters the share price hasn’t doubled, then sack the CEO. The same story repeats with the new guy.

There must be something wrong with expectations if 84% of the CEOs fail to last the desired term. Sure, results are important, but how can the corporate sector be termed as successful if three quarters of the leaders aren’t considered to be doing their job.

Ok, the inference is a bit misleading. Some of the CEOs retired. Some of them might have done their stint, even if it didn’t coincide with the neat chronological span of the decade. And why 10 years - why not 7 or 8 ? But still, you get the drift.

There’s something that can be learnt from the survivors. More than half the survivors were founders. But even after they no longer owned the company and had very small holdings, they were still valuable to the company. And the professionals, all had long stints in the company before they became CEOs. Glamorous CEOs brought from the outside, have rarely survived long enough. There’s one company that has recently taken a fashion to only considering outsiders, on the presumption that every insider is a fossilized dinosaur. It might want to, sort of, look around it.

Its all a completely different story is Asia, usually. You have to carry the senile old man, kicking and protesting out of the door. That's almost as bad as the other extreme in the Anglo Saxon world. For once, a middle path seems most appealing.


Sandhya Sriram said...

a blog for the ceo audience, so pretty out of reach for me to comment. so pardon for this being a little out of context!

Any leader who connects to the pulse of his organization (maybe because he is one of the founders, or he has spent abundant time with the company)stands the test of time.

i think it is largely cultural that in the west the connection is kind of more practical which makes exit easier. on the contrary, it is rather emotional in this part of the globe which makes it difficult for both parties to part

VA said...

Very true and interesting to read, especially the facts... my two cent from very little that I have seen in my work life...

The leader must stay for a reasonably long term for the direction and DNA is very important. Perhaps, a span of more than 5-6 years is necessary to drive the values and build the culture.

Exkalibur666 said...

I guess it should be tough for a CEOs to keep pace with the changing times when whole business models get transformed and new markets and products emerge in very short spans of time. It would be incredably challenging to provide a viable vision and focus to any organization in such a dynamic environment.

gils said...

itha oru analogya eduthu country politicsku apply pannalaum...ithey situation thaan!! :(( kwater and kozhi biriyani kuduthu powerku vantha thaathaas stl not retiring..entha kosu marunthu adicha intha imsaingaltenthu viduthalai kedaikumnu konjam ketu solunga

gils said...

happy new year year resolutiona unga kita economics coaching class seralaamnu thakshanaya..oru masam economic times subscription okva? :)

Ramesh said...

@sandhya - rubbish - this post is very much for you; a CEO in the making. SXee how you've captured the east vs west nuance.

@VA - Yes he should stay long enough. Eevn 5 years is too short I think. Maybe 7-8.

@Exkalibur - Yes, its a dynamic environment, but after all the CEO when he leaves, goes to another company. If he can keep pace there, he should stay and keep pace here. There's too much short termism and running (or thrown out) when the going gets tough

@gils - brilliant analogy with politics. Too many griatric thathas around ! I will be honoured to have you as a reader and not be presumtuous to think of being able to teach - you are an ustaad gils. Happy new year.

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