Thursday, December 31, 2009

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.