Why is Confidence in Certain CEOs So Fragile?

The shares of P&G are clearly reflecting a crisis of confidence. The Cincinnati consumer products giant has been criticized for being too late getting into emerging markets and allowing its costs to get out of control.

July 19 2012 by ChiefExecutive.net


CEO Bob McDonald of Procter & Gamble—a company worth $175 billion—is under attack from shareholder activist Bill Ackman. The shares of P&G are clearly reflecting a crisis of confidence. The Cincinnati consumer products giant has been criticized for being too late getting into emerging markets and allowing its costs to get out of control. In addition, its prices on its products are not priced in line with the recession-era consumer habits.

Since Ron Johnson became CEO of JCPenney the shares have yet to rebound. His stewardship is said to be a work in progress, but it too has not been able to get its prices in line with consumer expectations.

Even Warren Buffett who is famously hands-off when it comes to the day-to-day operations at the dozens of subsidiaries at his Berkshire Hathaway, summarily dismissed the head of Berkshire’s Benjamin Moore & Co. unit over strategy at the paint company.

Add to this the fact that activist shareholder Relational Investors LLC has acquired a roughly $600 million stake in PepsiCo, a move that puts pressure on the food company and its chairman and chief executive, Indra Nooyi. Although Relational CEO Ralph Whitworth didn’t call for a change of leadership, the investment fund and the company have met and discussed the structure of the North American beverage business and both sides have come to an understanding. Should performance not improve, changes may be in the offing, according to report by the WSJ. Nooyi has faced investor dissatisfaction since last year, after the company lost market share in U.S. soda sales to rival Coca-Cola.

Whitworth often advocates a sale or breakup of a company or cutting executive compensation. His stake in PepsiCo is small, about 0.6% of its shares outstanding. But big purchases are difficult for a company of PepsiCo’s size, which has a market capitalization of about $105 billion. He has nevertheless influenced companies even when it has held a small stake. Last year, Hewlett-Packard gave Whitworth a board seat even though Relational had only about a 1% stake.

In addition, Yahoo which has had five CEOs in as many years now has another chief Marissa Mayer, a former Google senior executive. Given the revolving door at the company is this an inspired choice or act of desperation? (She follows Scott Thompson, Carol Bartz, Jerry Yang and Terry Semel.) Ross Levinsohn, former acting CEO of Yahoo (technically CEO No.6 but who’s counting) has had a poke in the eye by the board, and will likely leave for a rival firm. Since Jerry Yang left the top spot the stock has gone sideways. Ms Mayer must be asking herself, Can you get people to be part of something like Yahoo –to believe in the dream after all this? Inside Yahoo, according to reports from The Wall Street Journal, reactions to Ms. Mayer’s appointment ranged from shock and delight among some company’s employees who work on its various Web services, to disappointment among some employees in the company’s important sales arm who had been following a relatively new strategy initiated by Mr. Levinsohn. Other managers privately expressed concern that yet another CEO would lead to yet another reorganization and more layoffs. John Keller, Vice Chairman, and CEO and board practice leader of search company CT Partners, has a different take. “This is a coup for Yahoo. The key is stability for employees. Mayer gives Yahoo product focus and Google genius. The Sunnyvale company needs product focus, which is Mayer’s expertise. The CEO experience is less important than her success with Google search.”

The underlying forces driving this volatility is not only slower economic growth but declining patience. In the 1950s and 1960s, CEOs could run their business for ten or more years without threat to their control or stewardship. But in more recent times there’s been a steady increase in the number of companies that look to the outside for a CEO when conditions do not improve. A CEO’s tenure, according to Booz consultants, on average is 7.6 years, down from 9.5 years in 1995. Yahoo’s revolving door at the top may be an extreme example, but the age of the semi-transient CEO may be upon us. Some argue that if the leaders of one or two otherwise untouchable big names such as P&G and PepsiCo are toppled in this way, we may see a flood of other, lessor firms be forced to change leadership as well.

Read More: Google’s Mayer Takes Over as Yahoo Chief