Life is not only lonelier at the top, it’s shorter. After a recent study of CEO succession events in the S&P 500, The Conference Board has identified this general trend: CEOs have been getting fired faster. Why?
The Conference Board thinks it has something to do with shareholders becoming more aggressive in making changes at the top. That may be. But if so, then why are boards of directors — and the shareholders they represent — increasingly dissatisfied with CEO performance?
In one sense, the job of the CEO is the same as ever: to deliver a good result for shareholders. But excelling in that job today is much harder, particularly because the world has changed.
They say old dogs can’t learn new tricks. But not long ago, successful CEOs didn’t need to. The right person to have in the top job was the one who “knows the way we do things here” and wouldn’t try to fix what wasn’t broken.
As a result, the refrain, “That’s the way we’ve always done it,” wasn’t so much unimaginative as it was prudent. The prevailing mentality was it’s hard to grow a big business. So if you’ve found a way that works, count yourself lucky — and stick to it. Don’t try to reinvent the wheel — or the Coca-Cola.
Get a picture of the path ahead
But globalization, the rise of the Internet and the increasing rate of technological discovery have changed the very nature of being a CEO. Just because you’re in the right business, the right way, today, doesn’t mean you will be tomorrow.
Imagine it’s the year 2000, and you are CEO of a large call center serving the pharmaceutical industry. Your three tasks are to keep quality up, customers happy and land new accounts — until a company in Mumbai starts drastically undercutting your prices. Perhaps for the first time, you must find entirely new ways to think about the business.
That takes time, if a solution can be found at all. So you’re working to formulate a promising response — when you’re fired.
Now imagine you’re the CEO of a video rental company in 2000. Even if it’s a big business, the business is conceptually simple: Your job is to sell more video rentals and to increase the profit on each one.
How? Mostly by opening new stores and by making sure you have many copies of the most in-demand movies on the shelf every Friday night. Plus, you collect late charges. You are really good at those things. You even smoothly make the shift from videos to DVDs. But then someone in California comes up with a novel equation: DVDs + U.S. mail + subscription – stores = Netflix. A seemingly short time passes. You’re fired.
Take time to stop at talents
Corporate America has changed. In the past, a well-regarded CEO was one who could optimize the business model that he or she had. Today, CEOs must not only do that, they need to be skilled in redeploying resources into better businesses. Leaders who excel in running the core business must also be equipped to evaluate nascent opportunities beyond it. And frankly, most of them can’t.
Why not? For the same reason pitchers rarely hit well, and hitters can’t pitch. In baseball, you draft a player for his strengths, knowing he won’t do everything well. That’s why every big league manager knows better than to send the slugger to the mound or bat his closer at clean up.
Is it possible that your big hitter is also the unhittable pitcher? Well, maybe in your dreams.
You may find the CEO who can run the current business better than most or the one who starts and nurtures tomorrow’s winners today. But how many CEOs of large companies can do both very well? All of them could sit together in your living room, comfortably.
Boards that expect old dogs to learn new tricks — while continuing to perform the old ones — simply haven’t come to terms with the new realities of competition. CEOs hired to do both are well advised to cover their bases, and negotiate a severance package up front.