Endangered!

Dec. 21, 2004

Unless CEOs perform very well and very fast, they're history.

Surprising as it may seem, manufacturing's CEOs have something in common with the threatened Barton Springs salamander and the Virginia big-eared bat. Chief executives, too, are on an endangered species list. Jacques A. Nasser, the recently dismissed CEO of Ford Motor Co., knows first-hand the ultimate downside of being a CEO. So do Michael Bonsignore, formerly of Honeywell International Inc.; Jill Barad, formerly of Mattel Inc.; Richard McGinn, formerly of Lucent Technologies Inc.; G. Richard Thoman, formerly of Xerox Corp.; and Gran Lindahl, formerly of ABB Ltd. They're five more of the high-profile chief executives in manufacturing companies who have been jettisoned during the past few years. It's not just your imagination. Companies are bidding good-bye to their CEOs at a faster pace than they did only five years ago, confirm executive recruiters Russell S. Reynolds Jr., chairman and CEO of The Directorship Search Group, Greenwich, Conn., and Nat Stoddard, chairman and CEO of Crenshaw Associates LLC, New York. More than 1,000 CEOs have departed their corner offices since August 1999, according to one recent estimate. And just last month, as Hewlett-Packard Co.'s acquisition of Compaq Computer Corp. seemed headed for trouble, there was widespread speculation that Carleton S. (Carly) Fiorina, H-P's chairman and CEO, might soon be shown the door. Short-term underperformance, failure to meet earnings targets, poor employee morale and defections by senior managers are some of the reasons that boards of directors are moving rapidly to remove CEOs at major companies, says executive recruiter Reynolds. For example, contributing to Nasser's downfall at Ford, says Reynolds, was cutting the company's dividend, which "infuriated" the family. Apparently working against Nasser, too, was his campaign for diversity within senior management. That caused angst among people whose "assured" promotions seemed threatened, says Reynolds. An ill-fated acquisition that costs shareholders millions of dollars -- such as Barad's $3.5 billion purchase of the Learning Co. -- similarly can figure in a CEO's downfall, adds Reynolds. CEOs have only five earnings quarters, on average, to prove themselves, asserts a brand-new study from Burson-Marsteller, an international public relations and communications consulting firm. The study data don't show big differences between manufacturing and service companies in the time they give their CEOs to succeed, says Leslie Gaines-Ross, chief knowledge and research officer at Burson-Marsteller. New CEOs, on average, have eight months to develop a strategic vision, 19 months to increase the company's share price and 21 months to execute a turnaround, reports the study, which was conducted with the RoperASW unit of United Business Media PLC and drew on the opinions of 1,155 U.S. chief executives, senior managers, financial analysts, institutional investors, business media and government officials. The management bottom line in the U.S., and increasingly elsewhere in the world, is that despite their other skills and achievements, CEOs who don't make their numbers will be history. If CEO's don't have creating value for shareholders as their No. 1 priority, "they're really not going to have" the chance to get to priorities No. 2, No. 3 and No. 4 -- the employees, communities, suppliers and others that have huge stakes in seeing a company succeed, emphasizes Crenshaw Associates' Stoddard. To be fair to CEOs, however, the pressures on them to perform are tremendous and complex. They're expected to have better than 20/20 strategic vision, to execute strategies flawlessly, to satisfy the sometimes conflicting needs of company stakeholders, and to be teachers, motivators and ethicists. What's more, CEOs sometimes walk into companies still wedded to old strategies, in which executives or boards of directors say they are for change but don't fully buy into the new person's plan, points out Chicago-based Birgit R. (Bee) Westphal, managing director of the industrial/manufacturing practice at Christian & Timbers, an executive search firm. "Jac Nasser was an incredible CEO," she asserts. "Was the company ready for all his changes? I don't think so." Indeed, when a CEO lasts less than two years, the board also needs to take some responsibility, asking what went wrong, stresses Stoddard. Was there something wrong with the screening process? Were the board's expectations unrealistic? Was there a succession plan worthy of its name? Was there something wrong with the company's strategic direction? "You can't lay [all the blame] on the doorstep of the CEO that [the board] brought in," insists Stoddard. "Personally, I think that all CEOs should be judged on a three- to five-year rolling time frame and not short, short term," says Reynolds. "But the world is not uniformly going in that direction," he acknowledges.

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.