Are You on the Chopping Block?
November 11 2010 by C.J. Price
Mark Hurd’s abrupt departure from Hewlett-Packard shocked both Silicon Valley and Wall Street. It isn’t often a company reports better-than expected earnings, raises fiscal year guidance and dispatches its CEO all in the same day. The board vaguely cited violations in standards of conduct, but most experts agree it likely wasn’t the fudging of expense reports or the sexual harassment allegations that ultimately brought Hurd down. To be sure, no board likes the whiff of scandal, but if HP’s directors had been pleased with their CEO, they’d likely have stood with him.
Hurd’s ouster underscored his lack of popularity at HP, from the boardroom on down to the mailroom; he had the lowest employee approval rating of any technology company CEO. His operations talent and penchant for fat-trimming enabled him to deliver short-term results that delighted Wall Street, but he was short on vision, cutting R&D and undercutting HP’s spirit of innovation. Ultimately, it seems, HP’s board opted not to sacrifice the company’s future for near-term results.
As more boards look beyond cost-cutting moves in search of real strategic vision, Hurd may find himself in wider company. “Companies that have had their heads down during the recession, focused solely on survival, are now beginning to look up,” says John Challenger, CEO of Challenger, Gray and Christmas. “Before they may not have wanted to change horses midstream; it was just too much risk. But now that they can see clearly, they can make those changes they might have wanted to make earlier, in better times.”
The most recent stats from Challenger, Gray found slower turnover through the summer, but 2010 is still outnumbering 2009. And with the restructuring period winding down, only those CEOs who can shift gears nimbly into growth mode will survive the next wave of change in the corner office. Herewith are seven signs your tenure may be in jeopardy.
You stumbled during the recession.
The sinking tide pulled most ships down over the past two years, so boards gave their CEOs more latitude on the numbers than they otherwise would have. But those who were slow to react or unable to manage the volatility will find directors doubting their ability to ride out a future storm. “A lot of companies were disappointed with the quality of senior management and their ability to execute with a steady hand in a difficult time,” says Owen Ryan, managing partner of risk and advisory services at Deloitte & Touche LLP.
Risk management can sometimes take a back seat when times are good and the organization is focused on growth, but, given the recent bruising, CEOs must show they have a better plan for the next disaster, says Ryan, who recommends instituting more formal scenario-based planning. “The ability to really make sure the company is prepared for as many events as possible is becoming more critical, because what we’ve learned is, anything is possible,” he notes.
You were too good at navigating the recession.
If you managed to stay largely unruffled as the markets tanked—deftly reducing ranks, squeezing more profits out of less and making it all look fairly easy—you could find yourself typecast as a recession-era CEO or turnaround chief. Proactively show your versatility by unveiling a course for growth over the next 12-to-18 months. Bring along senior staff to demonstrate alignment and let the board and Wall Street know that you aren’t afraid to start taking strategic risks.
“If growth is not your sweet spot or your orientation, you need to surround yourself with teams of people who are product heads, heads of marketing or chief merchants that do have the orientation to create new products and services,” says Clarke Murphy, co-leader of Russell Reynolds Associates’ CEO and board services practice. Boards are looking for adaptability, “or what we call ‘learning agility’” adds Murphy. “It’s the ability to successfully navigate new situations and figure out what’s going to work. It’s decisiveness and having the communication skills to not only draw out of an executive team what should we do next, but to articulate where the company is going in this new era.”
The board is repeatedly questioning your strategy.
If you’re finding yourself increasingly on the losing side of boardroom debate or directors are challenging your team’s ability to execute on strategy, that could be a sign of trouble ahead, says Murphy. “You really have to invest in the board and communicate with them. Go to the directors one by one and discuss it outside of the boardroom.”
Be careful not to get into a defensive, reactive position. “You should be proactively setting the agenda for the board,” notes Keith Meyer, vice chairman and head of global CEO and board practice for executive search firm CTPartners. If the board loses confidence in your command, they may invite an outside strategic consultant to come in and “help” you look at your options, whether it’s restructuring the balance sheet, reorganizing or selling. “And that’s the worst-case scenario because then you’re just watching the movie. You’re not even the lead actor,” says Meyer. “You really can’t err being proactive, but you can lose significant leverage if you’re reactive.”
Your bench is weak.
“One of the things the economic crisis exposed for a lot of companies was the depth of the talent below the CEO,” says Ryan. If that is lacking, it directly reflects on your leadership development skills and succession planning ability. “As much as it’s about the CEO’s own adaptability, it is equally about their ability to have a team that augments their weaknesses.”
Make sure you’re surrounded not only by those you trust, but by those who complement your skill set. Meyer recommends charging several senior staff members with identifying new growth opportunities and having them deliver results directly to the board. In addition to getting your top people focused on the company’s future, you’ll also be demonstrating more visible CEO succession.
You’re stuck in the past.
Now that companies are switching into forward gear, directors want to hear CEOs exploring some of the more seismic shifts taking place today and figuring out how they will profit from them. “The cultural change we’re going through right now is the greatest we’ve seen,” says Suzanne Hopgood, managing director of board advisory services for the National Association of Corporate Directors. CEOs across industries need to be thinking about the impact of social media and related technology, the green revolution, the middle-class boom in emerging economies, among other major changes. “If Facebook were a country, it would be the fourth-largest country in the world. We need to understand the magnitude of that,” says Hopgood. “We’re looking for leadership skills, for the senior management team to be thinking differently, to be viewing the opportunities differently than in the past. We want vision, people who can look ahead.”
You’re more trouble than you’re worth.
Despite declines in CEO pay over the past two years, grumbling about overpaid executives is louder than ever and shareholders’ demands for a greater voice have gained traction. Thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act, mandatory say-on-pay has become federal law, effective in January. Shareholders at Motorola, Occidental Petroleum and KeyCorp have recently voted against lavish pay packages at the top. The votes are non-binding, but the message is clear, says Peter Crist, head of Crist|Kolder Associates, who is starting to see CEO searches for younger candidates who bring less experience but a lower price tag. “We’re in boardrooms every day and there’s this tone of, ‘If I have to choose between a scarred, sitting CEO and somebody who is a division president at a successful company, I’m going with the latter,’” says Crist.
They just don’t like you.
While it’s not a popularity contest, as Hurd learned, if you haven’t won over the troops, they won’t follow you into battle. The imperial CEO has fewer and fewer options in corporate America as the number of stakeholders to consider has grown. If investors, partners, employees or even regulators are disgruntled or dissatisfied with your performance, you’re better off seeking the problem out and correcting it, rather than waiting for it to fester.
“Have conversations with at least a couple of contrarians and try to be as open as possible. Talk to that hedge fund that doesn’t agree with your strategy and spend an hour hearing that side out,” says Meyer. Too often, CEOs get caught in their own networks and channels of communication and become isolated, he adds. Or they think they don’t have enough time for that investigative work. A year ago, that might have been valid, he adds. “I think we’re past that point now.”