In the modern business world, the CEO leads a precarious existence. Mark Stuart makes a plea for the protection of this endangered species.
"I accept that I am a worm," said Winston Churchill, "but I do believe I am a glow-worm." CEOs should be the glow-worms of businesses, illuminating the way to increased profitability, but instead they are busily trying to avoid getting trodden on.
The average life expectancy of the average CEO is now somewhere between 30 and 40 months. Whether a new CEO sees this as an adequate length of time to turn an ailing business around depends on the size of the business concerned. But one thing is certain: becoming CEO makes even the most confident business leader jumpy and inclined to glance over their shoulder. In the UK, in 2000, one in four CEOs of UK businesses with sales of over £500m left before they were supposed to. This is twice the early departure figure for 1990. And the trend is continuing.
THE DISPENSABLE CEO
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. But why? Fundamentally, it's because the CEO is perceived to be more dispensable than a COO. This is not to do with the quality or otherwise of the CEO, but because it's easier for the CEO to be jettisoned than the COO. The COO is too tightly knitted into the fabric of the organisation to be dispensed with easily. The CEO, however, is more of an appendage. When things go wrong, the CEO can be ejected smoothly and quickly, and the company can be seen to have done something radical to remedy the situation.
So while the CEO is wrapped up in worrying about how to not lose their job, real power rests with the COO. Indeed, for the ambitious executive trying to ascend the greasy corporate pole, becoming a COO seems a much safer bet these days.
WHO DOES WHAT
The CEO's situation is not helped by the fact that there is a lack of clear understanding about the difference between the CEO's and COO's roles. Bluntly, the CEO's role should be entirely strategic. The CEO should be a visionary capable of seeing which long-term direction the company should be traveling in. The COO, on the other hand, should be responsible for the day-to-day handling of the business.
It is vital to the success of both the CEO and the COO that the latter is not involved in strategy. The COO must focus purely on operations. When the COO gets involved in strategy, you are in trouble.
Some companies end up in this position because they don't make this difference clear enough. Look at high-level recruitment agencies' job vacancy lists and you will quickly see CEO posts offered where the candidate is expected to 'look after the day-to-day management of the business' or COO adverts where the incumbent is required to 'manage the strategic way forward for the company'.
There are even some roles advertised where the jobs are put together. It doesn't take long to find job titles such as 'CEO/COO of multinational manufacturing company'. But the joint CEO/COO is actually relatively vulnerable: you have less chance of satisfying both the operational and strategic sides of the role than you have of succeeding in one or the other.
Problems also arise when the two roles blur or overlap. The next thing you know, the COO is complaining about the CEO to the board, or vice versa. As a result, someone gets fired. But it's never the COO; it's always the CEO, because it's easier to jettison the CEO – that is why CEOs become scapegoats.
A succession of CEOs marching through a revolving door is going to damage shareholder and investor confidence and distract from the day-to-day operations of employees, who become less motivated because they don't see clear leadership. The net result is a company that cannot hope to achieve its potential.
There is a problem with short-term CEO tenure. Increasingly, investors are interested not in what the company is doing this year or next year but within the next four years. However, the average lifetime of a CEO is measured in months, not years. According to Value Line, a leading source of shareholder research, 80% of an investor's attention is on what the organisation is likely to be doing in four years' time. And inevitably, investor confidence is dented by the prospect that the person leading company strategy might not be in place in four years' time.
The solution for CEOs is not to emulate the COO and attempt to become more embedded in the fabric of the organisation, and thus more difficult to remove. The answer is for the CEO to acquire more power so that they are not subject to the whims of shareholders who exercise the boot the moment things go wrong.
The message for companies is: think long and hard about your choice of CEO, but when the choice has been made, stick with the incumbent and give them enough time to see their strategy through from start to finish. When things go wrong, hold your course. And make sure the COO understands the responsibilities of the CEO and COO positions: the CEO decides strategy; the COO executes it.
It may sound a little autocratic to say this, but CEOs shouldn't be subject to the whims of boards or shareholders. CEOs should be allowed to set out a company's strategic stall and declare how long it will take to achieve it. If, at the end of the CEO's tenure, the strategy hasn't been delivered, then maybe it's time for a new CEO. Then again, extra time for the CEO to deliver might be just what a company needs.
THE CASE FOR CAUTION
Consider the case of M&S. The company has recently posted pretax profits that are 19% lower than in 2004. It admits that its prospects remain 'challenging'. And it has come in for a lot of flak since CEO Stuart Rose was appointed in 2004. It controversially resisted a takeover bid from BHS's owner Philip Green worth £9.1bn, and its shares are trailing well below the 400p that Green offered investors.
Now, if M&S's board acted the way many other companies do, Stuart Rose would be axed on the grounds that he has had a year, his strategy isn't working and it's time for a change. But the chances are that doing so would merely exacerbate the problem. The signal it would send out to shareholders, customers and employees would be damaging: that M&S are getting more and more desperate. Also when a succession of CEOs implement new company strategies, the result is confusion, waste and ultimately failure.
When Churchill likened himself to a glow-worm, he was expressing his view that, although he realised he was unimportant in the grand scheme of things, he nevertheless did his best to shine brightly. Protecting CEOs will enable them to do the same, while a touch of Churchill's humility will stand them in good stead.