Opinion

The Great Debate

The CEO is the latest endangered species

March 6, 2009

ericauchard1– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

The revolving doors are spinning ever faster in the executive suites of corporations.

CEO turnover has reached an all-time high, according to figures kept by recruiting firm Challenger & Gray. Last year, 1,484 U.S. CEOs resigned, stepped down or were fired — six casualties every business day.

Resignation has outpaced retirement as the leading reason for departure, as the credit crunch has dealt a savage blow to prospects for growth and investors grow restive over share dilution, dividend cuts and shrinking outlooks.

High profile departures stretch from the bosses of the global retailer, Carrefour, to computer maker Lenovo to a succession of financial leaders including those at AIG, Merrill and UBS.

Turnover among top executives may even be accelerating as we descend into 2009. Similar defections appear to be occurring around the world, although no one keeps track of exact totals.

Given the public’s newfound lust for revenge against the CEO class, this exodus may provoke little more than a wry smile among anyone struggling to fend off the effects of the credit crunch in their own lives.

But it presents a practical problem for those boards of directors left to pick up the pieces after a CEO departs with his reputation and strategy in ruins: Where to find the talent and experience to step in and shore things up as well as start to build towards the recovery?

Executive recruiter Heidrick & Struggles has come up with one idea to solve the brain drain. It has lined up hundreds of executives across industries and functions for what amounts to an executive temporary service.

Think Manpower or Kelly Girl, only for former captains of industry — CEOs, CFOs, chief marketing, human resources and information officers. The idea is to place these individuals with companies needing short-term leaders — either to solve a crisis or seize a new business opportunity.

Many of the executives taking part in the Heidrick & Struggles’ Chief Advisor Network have left high-powered positions and are no longer interested in full-time work. But, like many in their baby boomer demographic facing the prospect of retirement, they are unwilling to completely disengage from work.

Executive temping is a natural extension of Heidrick & Struggle’s established executive search and leadership advisory businesses. Tapping the experience and talents of executives with a solid track record of corporate leadership makes sense to fill obvious leadership voids. The idea of bringing back a wise old head, perhaps one that can even remember the last recession, after a disastrous few years under a whiz-kid CEO probably appeals to many shaken boards.

But while the approach may offer a quick fix to companies in deep crisis — and there are plenty of those around right now — it’s not clear that it is the way forward in other situations. And there are even questions about how effective that fix might prove. Bringing in an outsider with no deep knowledge of a company can be a recipe for chaos — especially when things are in flux.

There’s also the risk of bringing in someone who is motivated principally by financial incentives and won’t stay around to see how their decisions pan out over the long term. Wasn’t short-term decision making by managers and directors often what tripped up these companies in the first place?

Lastly, the ability to rely on a temping service may even encourage boards not to take hard decisions on management succession, figuring they can plug the gap if they need to.

Leadership is vital in the wake of an important executive’s departure. But dialing up a CEO is symptomatic of the wider breakdown in corporate governance that has occurred over the past decade. If the practice becomes widespread, such short-term solutions are likely to breed further disillusionment with corporate management.

– At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. –

Comments
3 comments so far | RSS Comments RSS

For the most part the only thing special about the current crop of CEOS is their greed and self worth based on their material possessions. Many come through the revolving door of “upper tier” consulting firms, from “upper tier” schools, and the petri dish cultivating all forms of the “old boy network” and behaviours.. They are a group of insulated delusional invididuals.

There are many talented, worthy individuals ready to assume the CEO title that gained their skills outside
“upper tier” mainstream. Hopefully now they will get their chance to do some good work.

Posted by Carrie B | Report as abusive
 

Kind of illustrates just how necessary the CEO is. As far as I am concerned our corporate industry does not need a CEO. If there is need of a “head” for the beast then rotate the upper managers though the position. You save millions and have better decisions made due to the better industry knowledge. Let’s face it, up until now all we have done is support a corporate aristocracy which does not stick around long enough to take blame for their arrogance and ignorant decisions and which imparts absolutely nothing to the industry. Even the best CEO do nothing more than filter the information provided by upper management and make an educated guess. It is about time we stop robbing share holders, employees, and consumers to pay for the life styles these arrogant aristocrats wrongly believe they deserve.

Also, no one in a publicly traded corporation should be compensated more than 10 times the average compensation of their employees. This rule of thumb should be adhered to by boards and share holders and if they can’t, the government should step in an make it law.

Posted by B.Free | Report as abusive
 

One of the biggest sham arguments is that CEO compensation has to be stratospheric because that is the only way to get the best talent. Judging from the business news over the past year, most companies would probably have been far more profitable if they had hired someone willing to get paid a relatively low salary, say 10X the average employee salary, but whose main concern was to help the company. I am a doctor and I think medical schools would do far better taking students who were in the second tier, since first tier students go into medicine mainly to make money.

Posted by Tony Justin | Report as abusive
 

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