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Being a CEO has its perks, but tenure isn’t one of them

Being a CEO has its perks, but tenure isn’t one of them
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First Published: Wed, May 14 2008. 01 06 AM IST
Updated: Wed, May 14 2008. 01 06 AM IST
Pity the put-upon CEOs. Let us count their burdens: Expectations from impatient boards of directors. Intensified pressure from shareholders, unions, and competitors. Onerous scrutiny from regulators. And, zero job security.
The tenure of chief executives, those richly compensated princes riding herd on America’s publicly traded companies, ranks among the shortest of any professional group. And it’s continuing to be whittled down, according to data from consulting firms.
As much as 40% last no more than two years. The average CEO’s tenure dropped from 9.7 years in 1999 to 8.3 years in 2006, the most recent year for which statistics were compiled by consultants Challenger, Gray and Christmas Inc., Crist Associates Llc., and Spencer Stuart or SSI (US) Inc. The median tenure—the number separating departures on the lower and higher halves—stood at 5.5 years in 2006.
Remember the gold watches presented at retirement parties honouring decades of devoted service? The most fitting gift for CEOs heading out today might as well be a gilded boot.
“You have only one chance to get it right,” warned Mark Gottfredson, a partner in the Dallas office of management consulting firm Bain and Co. Inc., who’s analysed CEO turnover trends, as disruptive technology and globalization have scrambled the game over the past decade. “And if you don’t, you’re out on your bum.”
Not that the penalty for being bounced is too harsh. Robert Nardelli walked away from Home Depot Inc. with a $207 million severance package last year after failing to lift the company’s ailing share price. Nardelli, a protege of Jack Welch at General Electric Co. who left the home improvement retailer after six rocky years, was quickly snapped up to run auto maker Chrysler Corp.
Despite the cushioned landing, there’s no shortage of advice for CEOs who’d rather stay in the saddle a bit longer before being bucked off—and maybe enrich their investors as well as their bank accounts. Gottfredson and Steve Schaubert, a Bain partner in Boston, last month published The Breakthrough Imperative, a book for new CEOs intent on beating the odds.
They recommend sizing up a company’s prospects and crafting a winning strategy in alignment with “four laws” they’d earlier laid out in a Harvard Business Review essay: Costs and prices will decline over the long term; competitive position will determine your options; profit pools will be constantly in flux and; customers will reward simplicity.
“You’ve got 90 to 100 days to do a diagnostic on your point of departure,” Gottfredson said. “You’ve got another 30 days to turn that into a compelling, motivating, realistic vision for the point of arrival. Then you’ve got to have a path for getting from Point A to Point B.”
That’s four months to take stock and design a road map, and another year at most to get the enterprise back on track.
But executing is far from simple in today’s business world, where a turnaround plan has to encompass everything from product innovation and market segmentation to technology shifts and changing customer tastes.
“All of the warts, all of the mistakes that used to be hidden in the past, are out there in the open today,” maintained John A. Challenger, the chief executive of Challenger, Gray and Christmas, a Chicago out-placement firm that tracks CEO tenure. “Every time you make a bad decision, you get crucified. There’s much less potential for a long-term tenure, and more potential for an ignominious exit.”
Think of Jim Donald, fired in January after three years at the helm of coffee maker Starbucks Corp. amid slowing sales. Think of Charles Price, knocked from his perch at financial goliath Citigroup Inc. last November after four years of piling up subprime mortgages. Think of Carly Fiorina, who engineered technology giant Hewlett-Packard Co.’s controversial takeover of Compaq Corp. in 2002, only to be canned three years later.
In many ways, the increasingly tenuous ties between boards and their hired guns is a reflection of trends in the broader society.
“Boards want to see results immediately,” said Lauren Mackler, an executive coach and corporate consultant in Newton who advises her clients to adopt a collaborative mindset and seek buy-in from their charges. “That’s not the best way for a new CEO to acclimate into an organization. If you come in with a machete and produce fear, you’re not going to get the results from people that you want to have.”
But failing to act rapidly and decisively can be fatal. “You can look at the CEO relationship with their companies as a form of marriage,” Mackler suggested. “And roughly one of every two marriages right now is going to end in divorce.”
That would include the privileged tribe of CEOs. Sure, they have their generous salaries, fat bonuses, stores of stock options, and lavish perks. And, unlike their worker bees, when they get tossed out the window, they have their “golden parachutes” to ease the fall.
But they still can’t hold down a job.
©2008/The Boston Globe
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First Published: Wed, May 14 2008. 01 06 AM IST