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CEOs expect to last only 18 months
by Mark Cobley
Originally published in Financial News, 6 February 2006
Chief executives at the world’s biggest companies expect to stay in the job for just 18 months in the wake or more demanding shareholders and increasingly fraught relations with their chairmen, according to new research.
The average expected tenure of chief executives has fallen by more than a third in the past two-and-a-half years, according to a study by the UK’s Cranfield School of Management. It interviewed chief executives at 140 of the world’s biggest companies and found they expected to stay in their jobs for between 18 and 19 months, compared with about 30 months when the survey was last carried out in 2003.
The study found one of the biggest problems facing top managers was unrealistic demands and objectives from investors.
Andrew Kakabadse, professor of international management at Cranfield School of Management, who compiled the survey, said: “While chief executives’ remuneration is on the rise, the demands on them have also increased. They are expected to produce results in an overcompetitive market, a market where there is oversupply of goods. If they do not, it’s seen as a failure.”
Kakabadse said another reason for shortened manager tenure was that company chairmen were becoming more dominant. He said: “The chairman is becoming more significant. What seems to be happening is that the board will discuss the chief executive’s performance with the chairman but not with the chief executive. The chief executive is becoming isolated from the board.”
The survey was drawn up by asking chief executives how long they expected to be in their job and how they fared at their previous employers. Kakabadse cautioned that it was not a statistical survey but a series of “intensive interviews”.
BoardEx, a boardroom research company, has also found that the average tenure of directors is falling. Among its sample of 1,000 of the largest UK companies, average tenure dropped from 6.25 years in 2000 to 5.8 years. It also reported that 62 chairmen and chief executives among the 2,200 biggest UK and continental European companies have announced their departures in the past two months, up from 46 a year ago.
Several have changed chairman or chief executive because of shareholder pressure. They include Volkswagen, whose supervisory board chairman Ferdinand Plech agreed to go next year as part of a compromise deal between the carmaker’s largest shareholders, the Lower Saxony state government and car group Porsche. Investors such as Tweedy Browne, a US investment company, led shareholder opposition to Plech.
Ian Russell, chief executive of Scottish Power, left last month when shareholders reacted badly to his defence of the company against a takeover by German energy group E.On.
Jens Adler, Swisscom’s chief executive, resigned on January 20 after a public row with the Swiss government, Swisscom’s largest shareholder, over the telecoms group’s attempts to buy Eircom, Ireland’s fixed-line operator.
Ian Gowrie-Smith, founding chairman of UK drug company SkyePharma, was forced out by rebel shareholders, including North Atlantic Value, last month. The group faces further opposition after appointing Argeris “Jerry” Karabelas as Gowrie-Smith’s replacement. The shareholder described him last week as an insider.
Philip Purcell, Morgan Stanley’s chairman and chief executive, lost his job last summer after a group of former Morgan Stanley bankers claimed the bank’s share price underperformed as a direct result of a failure of leadership.
Carol Leonard, who leads the board practice at UK headhunters, Whitehead Mann, said faced with mounting shareholder demands and increasing public scrutiny, many chairmen and chief executives found the job less appealing.
“Chief executives are not afraid of demanding shareholders; these are alpha-male types who are able to deliver. But more and more the demands are concerned with short-term performance. The demands of fund management firms are often geared towards their own quarterly reporting periods. Chief executives may feel that is to the detriment of longer-term objectives and they find that frustrating.
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