Corner Office-When the CEO’s Gotta Go

Corner Office-When the CEO’s Gotta Go

Views from both sides of the fence.

In my career, I’ve observed the turnover of many CEOs. Some were terminated by their companies or boards; others simply decided that trying to stay at the top of the greased pole was too agonizing or not worth it and resigned. I have had to terminate dozens of CEOs over the years due to the nature of my firm’s work, and also in my role as corporate director and chairman of multiple companies.

However, I also personally made the decision to voluntarily leave the big, corporate corner office to work in a smaller, entrepreneurial environment. These experiences give me a distinctive perspective on both sides of the fence.

CEO departures have fluctuated in recent years along with the economic gyrations. But based on the results of a recent study of 1,227 chief executives who’d left their posts, done by Chicago-headquartered outplacement firm Challenger Gray & Christmas, 2009’s turnover was the lowest in five years. According to this survey, the main reason given for departures in 2009 (355 CEOs) was “resignation.” Another 251 CEOs retired. Only 15 were fired by their companies, and seven were “removed due to underperformance.” This was surprising to me, but I suppose it’s hard for boards to discern between poor leadership and poor results due to the Great Recession.

Since many more chiefs voluntarily vacated their posts than were fired, let’s start by looking at that side of the fence.

 

When the CEO Resigns

It’s a widely held belief that all employees aspire to be CEO. Of course, very few actually make it to the very top of the ladder. And sometimes if they do, they find it’s not all it was cracked up to be. Some senior-level executives get close enough to the top to shy away from it.

In a 2004 survey published in USA Today, 60 percent of the most senior executives at Fortune 1,000 companies said that they had no desire to be promoted to CEO. That’s more than twice the 27 percent who didn’t want the job just a few years earlier. The main reason: The job is too high risk.

CEO turnover now matches the normal attrition rate for all employees. It has increased so much that a 2005 article in Virginia-based consulting firm Booz & Company’s quarterly leadership magazine referred to CEOs as “The World’s Most Prominent Temp Workers.” Could it be that the age of the ephemeral CEO is here? As a consequence of the revolving door that greets the CEO on arrival at any company, real power rests more and more in the hands of the COO or other executives below the CEO level.

Another phenomenon taking place is that CEOs are retiring at ever-younger ages. Almost 20 percent of the CEOs who stepped down in the past few years as part of a planned transition were 55 or younger.

The job of CEO is highly demanding, and the personal sacrifices to perform it can sometimes outweigh the rewards. CEOs perform multiple tasks: They establish priorities for capital investment; they set strategy and goals that include buying and selling businesses; and they have to know how to change direction in the face of market conditions, competition, economic pressures, and uncertainty about whether the new strategies they set will be more successful than the old ones.

CEOs are charged with understanding the opportunities and risks of an entire company—without being able to have a complete day-to-day grasp of all that the company is doing. They are responsible for maintaining relations with employees, major customers, shareholders, stock analysts, politicians, regulators, union officials, and—not the least—the media, even though these duties divert them from operating their companies.

CEOs also must set and build the moral and ethical tone of a company and cultivate a culture of performance. They must keep boards advised about and engaged in important developments to make directors’ governance more effective, understanding that boards today are more likely to challenge and second-guess their decisions.

And while discharging all these responsibilities, CEOs are expected to drive growth, increase operational efficiency, and enhance profitability, while attracting and training new talent to keep their companies viable.

Is it any wonder that any given CEO excels in some activities and not in others? And is it any mystery that increasing numbers of CEOs aren’t enjoying their jobs and are concluding that the personal sacrifices required for success are just too much?

I’m reminded of a story about a 60-year-old friend of mine who recently chose a new primary-care doctor. After my friend endured two visits and exhaustive lab tests, the doctor told him that he was “doing fairly well for a guy his age.”

That comment concerned my friend, so he asked whether the doctor thought he’d live to see 80 years.

“Do you smoke tobacco? Do you drink alcohol? Do you excessively indulge in coffee or chocolate?”

“No,” my friend replied, “and I don’t do drugs either!”

The doctor continued his line of questioning: “Do you eat rib-eye steaks or barbecued ribs?”

“Not much,” my friend answered, “because my former doctor told me red meat is unhealthy.”

“How about spending too much time in the sun golfing, sailing, hiking, or biking?”

“No, I don’t do any of that,” my friend responded.

“Well then, do you gamble, drive fast cars, or have an excessive sex life?” Again, my friend said, “No, not any of that either.”

“Then why do you even give a damn?” the doctor asked.

My point is that if your job as CEO isn’t fun for you, is all that hard work, stress, and personal sacrifice worth it? It’s a tough job, so you really have to like being a CEO to stay there long term. When the job becomes too difficult, an emotional drain, and a burden that begins to redefine your personal life in negative ways, it’s time to pursue other opportunities, as the press releases say.

 

When the CEO is Fired

In a smaller number of cases, the board decides it’s in the best interest of the company to fire the chief executive. This is a decision that should not be taken lightly. The board must discern between a CEO who has made some mistakes, and one who just doesn’t have the right leadership abilities.

In other words, the question isn’t whether or not the company is sailing full speed ahead, but how adeptly the captain is maneuvering the ship through rough waters. Sometimes it’s best to support the captain of the ship who’s just been thrown a few hurricane-force winds and is learning how to make corrections.

Boards also should realize that it’s difficult to find a replacement on a moment’s notice. In fact, it has been my experience that many times when inept CEOs aren’t fired, it’s simply because there’s no succession plan or leadership development program in place to groom a replacement. Let’s face it: replacing a CEO is very disruptive, expensive, and time consuming. These replacement costs have to be balanced against the risks of keeping a less-than-perfect chief executive at the helm.

In the most unfortunate cases of poor judgment, questionable ethics, or lack of mature leadership, the board’s decision to terminate should be swift and easy. But in most cases, according to a 2005 study conducted by Leadership IQ, the reasons CEOs get fired are more nebulous: mismanaging change (31 percent), ignoring customers (28 percent), tolerating low performers (27 percent), denying reality (23 percent), and too much talk but not enough action (22 percent).

The impetus underlying all these reasons is simply poor leadership skills. Leadership seems to be something that’s built into some people but not others. It’s up to the board to get actively engaged in the CEO’s performance to understand what’s really happening. Besides their role as shareholder advocates, directors also are a sounding board for the CEO. The best boards serve as debating partners that help their CEOs clarify and develop their thinking. If boards and CEOs are just going to sit there, smile at each other, and discuss the weather, one of the parties isn’t necessary.

As the economy recovers, decisions about CEOs staying or going will start to be on the minds of many chief executives and corporate directors. Both sides will have to exercise uncommonly good judgment in making those decisions.

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