Fire the CEO!

By Lear, Robert W. | Chief Executive (U.S.), March 2000 | Go to article overview
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Fire the CEO!

Lear, Robert W., Chief Executive (U.S.)

In professional sports these days, whenever a football, basketball, or baseball team has a bad season, the owners fire the guy in charge. Last year, it was a quick goodbye to coaches and managers like Ray Rhodes of the Philadelphia Eagles and Mike Hargrove of the Cleveland Indians. A few of these firees were old practitioners, but others were given no more than one season to perform. It is a harsh, make-it-or-break-it life.

Business corporations are beginning to behave in much the same way. Things go awry, the company misses its targets, the stock falls-and so does the CEO. In the last few months, the sound of CEOs crashing has filled the air.

It's not just CEOs and firms you've never heard of. It's Douglas Ivester of Coca Cola and Eckhardt Pfeiffer of Compaq. It's also CEOs like Gregory Wolf of Humana and Charles Perrin of Avon, who were fired in less than two years of running the show. Before the year is over, there will be many more names added to the list.

What brings on this widespread firing of CEOs? What's the difference between now and a few years ago when CEO tenures were longer and early leave-takings were to "pursue personal interests"? I think there are four major factors involved:

Financial reporting is much more intensive. The concensus and "whisper" numbers that analysts forecast for a company's quarterly earnings report are now widely publicized. Even the deviation of a few pennies per share-particularly on the downside-can cause a sharp fluctuation in stock price.

Shareholders are more intimately involved and are more sensitive to change. When big shareholders are on the board-Warren Buffett at Coke and Ben Rosen at Compaq, for examplebig action starts fast. As directors increasingly are paid in stock and stock options, they feel a personal pinch. And in the world of the go-go funds and the day traders, there are no mulligans for CEOs who miss their shot.

Boards are now more independent, and thus more proactive. As truly independent directors become the majority and are less likely to be the hand-picked buddies of the CEO, they are demanding timely results from their CEOs.

Boards have done a far from perfect job in choosing CEOs. Sometimes the board let the retiring CEO choose his successor, who was not the right person for the job at that time. Sometimes there was a different understanding of what the job was supposed to be and what it turned out to be.

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