CEOs finding it tough going

By ASHLEY CAMPBELL

It's tough at the top - and even tougher staying there.

An international study of CEOs has just shown that with directors, investors, market analysts and staff expecting ever more productive performance, landing the top job is anything but a guarantee of security.

When management and technology consultancy Booz Allen Hamilton surveyed 231 CEOs who left some of the world's largest companies last year, it found that between 1995 and 2001, CEO turnover increased by 53 per cent. In the same period, the average tenure of CEOs fell from 9 1/2 years to 7 1/3.

One of the explanations will have shareholders heaving a sigh of relief: boards no longer tolerate poorly performing CEOs.

The number of CEOs leaving because their company performed badly during those six years increased by 130 per cent (they were usually shown their cards within five years of starting the job).

But the mistake had to be significant - CEOs were much more likely to receive their marching orders after one-off events hit their company's share prices than after long periods of steady decline.

Related to this, CEOs are getting younger (except in Asia, where they're getting older).

In Europe, between 1995 and 2001, the average age of new CEOs fell almost three years, from just over 52 to just over 49. In North America, it fell from 50.4 to 48.8.

"In some respects, today's CEOs are like professional athletes - relatively young people with short, well-compensated careers that are succinctly terminated once they cease to perform at exceptional levels," says Ian Buchanan, Booz Allen Hamilton partner for Australia, New Zealand and Southeast Asia.

So, is it happening in New Zealand?

"I am not sure that New Zealand companies are quite there yet," says David Newman, CEO of the Institute of Directors and former CEO of BP.

"New Zealand boards have historically tolerated under-performing CEOs for too long, but I think this is beginning to change.

"That contract that used to be implied between executives and the company - that you had a job for life - that's gone."

He is pleased that boards are moving more quickly when they spot bad performance, but worried that they don't act so quickly on a steadily declining performance. That should indicate that the CEO is not learning from mistakes and probably should go, he says.

The Warehouse's Greg Muir also thinks the trend has not yet reached our shores.

"If you look at a number of major New Zealand corporate failures in the past decade, boards seem to have been remarkably kind."

Fletcher Building CEO Ralph Waters agrees: "It's a much softer environment than I'm used to in Australia."

And that is at least partly because independent scrutiny here is much less aggressive than overseas, he says.

However, Muir doesn't think that softness is necessarily a bad thing. Especially in New Zealand, outside factors - environmental, international - can get in the way of the best-laid management plans.

"CEOs are human, too," he says. "From time to time they do make mistakes."

The high turnover and declining age of the man or woman at the top reveal another change in business culture: it's not unusual for your CEO to have been brought in from outside, rather than having spent 25 years climbing the company ladder.

"Business is moving so quickly," says Newman. "If you've been in a company for 25 years before you get to the top ... you're not necessarily the right person for the job. Succession planning doesn't work all that well."

Why? "Good people won't sit in a job waiting for a dead man's shoes. They'll move on out of the company and seek opportunities elsewhere."

The increasing pace of business change means a different type of thinking is required of CEOs, he says.

"In the old days, industries tended to be slow-changing, tended to be predictable."

That's hardly a charge you could make of any industry today, and as a result CEOs have to be stronger strategic thinkers than in the past, able to react quickly, and positively, to change.

It's a point that Booz Allen Hamilton's Chris Manning reinforces.

"Companies today require the latest and the best knowledge around technology and industry developments. Unfortunately, for many people, as they get older they tend to lose touch with the technological developments in their industry."

What that means for older CEOs who have been in their jobs for a few years and want to keep them is that they must stay up to date, informed and out in front, he says.

"Look at Rupert Murdoch [71]. He's still at the front of his industry. He's still thinking about things that other people aren't."

Technology's destabilising influence on CEO job security is borne out by the survey's industry-specific findings. The highest rates of CEO turnover are in the fast-changing telecommunications services, energy and IT sectors. The lowest are in materials, utilities and financial services.

Indeed, CEOs in financial services are likely to last more than twice as long (10.3 years) as their counterparts in telecommunications services (four years).

Those short-lived telecoms services CEOs are also, with their IT colleagues, the youngest, reaching the top at around 45.

So, given their short average tenure, what do they do at the grand old age of 50 or so when they move on?

Manning says the difficulty older executives have finding another job once they've been working with one company for 10 or more years is another emerging trend.

"They're becoming harder to employ," he says, "particularly if they've left their job in a less-than-attractive way.

"If there are performance-related reasons for having to leave, the chances of you getting another job are pretty remote."

Or as Muir puts it: "It's their last job - literally."

And that, says Manning, is why CEOs demand high salaries - if something goes wrong they might never work again, so they expect to be paid for that risk.

But it's not all gloom. One of the reasons CEOs are getting younger could be that some are choosing to leave, says Newman.

"I think more CEOs around 45-50 sit back and say, 'Do I really want to keep doing this until I'm 60'?" Increasingly, the answer is no. "They want a life after business."

If they're leaving through choice, not bad performance, the natural move for many CEOs is into directorships. And once on boards, they can use their knowledge and experience to keep new CEOs in line - and maybe sack them.

Simple rules for success as a CEO

When it comes to separating the good from the bad, the research identified three key behaviours of successful CEOs.

* Deliver acceptable and consistent total returns to shareholders.

Short-term fixes don't work unless they mark the beginning of a long-term improvement.

* Set realistic expectations and avoid major mistakes.

Many CEOs who leave for performance-related reasons do better than their peers in the first half of their tenure.

The following steep decline in their performance marks the beginning of the end.

* Define and achieve your change agenda quickly.

New CEOs enjoy an initial honeymoon period in which they can initiate change, get the organisation's attention and set the tone for the future.