Don't Shoot the Messenger
1 March 2007 Colin Byrne
As shareholders increasingly demand heads to roll at the slightest downturn, the life expectancy of CEOs is plummeting. However, as Weber Shandwick's Colin Byrne tells Jim Banks, we may end up with no executives left.
The recent survey, 'Safeguarding Reputation', from leading public relations firm Weber Shandwick, which examines the turnover at CEO-level among Global 500 companies, shows a number of interesting trends. Not the least of which is that 15% of the world's top 500 CEOs departed in 2006, a decrease on 2005. Nevertheless, in Europe, the rate of turnover rose, with the UK showing one of the highest increases (see table, top right).
The reason for this, according to Weber Shandwick UK and Ireland CEO, Colin Byrne, is that across Europe there is growing demand from shareholders for senior executives to be held personally accountable for the performance of a company.
He explains: "John Brown at BP, for example, was one of the most admired CEOs in the world for his success in repositioning BP.
"But when a company slides, people, not least in the media, look to make the CEO a scapegoat. Europe may not have the cult of the celebrity CEO that we have seen in the US for the last decade, but accountability is certainly more important.
"Shareholders need leaders to take responsibility for the rough times as well as the good times." Increasingly, a company's performance is personalised to identify with the CEO, and this is something that senior executives must take into account.
In the UK, and elsewhere in Europe, the lifespan of the CEO is falling, but this short-termist attitude poses a number of dangers. According to Byrne, there is a need to balance accountability with the possibility of giving a CEO the chance to turn things around again.
He says: 'There is a parallel with politics, where an error by a minor civil servant results in calls for the resignation of a minister. However, if a CEO has to commit hara-kiri after every setback, then we will soon run out of CEOs who can turn a business around.'
He notes, however, that there are exceptions, such as Terry Leahy at Tesco, who for 20 years has led a team responsible for an amazing transformation of a brand, but has never sought publicity and has, therefore, not become personally identified with the success of failure of that brand.
Furthermore, the UK has almost twice the level of CEO turnover that is seen in North America, where financial performance and corporate governance are the important yardsticks by which CEOs are measured.
The message from the survey is that CEOs must be careful not to over promise or under promise, that they must balance the overall vision with the day-to-day mission of their businesses, and must reach milestones to retain their credibility.
Byrne also warns, however, that the trend towards short-termism in the UK and Europe is not reversible, and that CEOs increasingly face an uphill battle to maintain their status.
GLOBAL 500 CEO DEPARTURES METHODOLOGY
Weber Shandwick's Global Departures™ analysis is based on the world's largest companies by revenue according to Fortune magazine's Global 500 ranking (24 July 2006 and 25 July 2005). Fortune calculates revenue using publicly available data based on the companies' fiscal year ending on or before 31 March 2006.
Weber Shandwick divided the global market into four regions: North America (US and Canada), Europe, Asia Pacific and Latin America (including Mexico).