Higher Turnover and Increased Activist Intervention Complicate CEOs’ Lives

U.S. companies are switching CEOs at the fastest pace in five years as corporations such as Microsoft, Wal-Mart and GM deal with growth challenges, shifting customer tastes, competition from upstarts, and restive shareholders. Through the third quarter of 2013, 43 companies in the Standard & Poor’s 500 Index were working under new CEOs, according to executive recruiter Spencer Stuart. The year will likely exceed the 49 turnovers in 2011, the biggest for turnover since 2008.

GM just announced that Mary Barra, EVP, Global Product Development & Global Purchasing & Supply Chain at General Motors will succeed Dan Akerson on January 15, 2014. Barra, 51, will become the first woman CEO of GM in its history. This follows Wal-Mart’s decision to name Doug McMillon, head of its international business, to replace Mike Duke in February. Microsoft’s Steve Ballmer stated that his successor will be announced before the end of December.

More CEOs are being expected to master a broader array of skills. In earlier decades having a few disciplines under one’s belt was sufficient. In a global world change happens more rapidly and in a digital world decisions cannot wait. In a report by Bloomberg’s Jeff Green and Carol Hymowitz, CEO changes at Wal-Mart and Microsoft have been propelled by the need for better strategies. They quote Michael Useem, director of the Center for Leadership and Change Management at Wharton School of the University of Pennsylvania, that “Wal-Mart needs to improve performance in some overseas markets where it has stumbled, while Microsoft needs to better tackle the Internet.” It’s not just the changes in technology that are driving the high rate of CEO turnover. The record stock market in the U.S. also makes it a very lucrative time for an executive to retire, said John Wood, vice chairman at executive recruiter Heidrick & Struggles in New York.

When a company does stumble or slow, activist investors are increasingly willing to jump in, according to Wood. “They are now willing to directly go to boards with what they believe to be a legitimate commentary on the CEO’s performance,” he said

In subsequent stories on CEO turnover the Wall Street Journal reports that more and more companies are doing an about face with respect to activists. Instead of pulling up the drawbridge and resisting any attempts to entertain ideas from outsiders, companies are finding that it’s easier to open doors and engage with activists directly. Companies’ receptivity may have something to do with the fact that activists increasingly have the support of long term institutional shareholders. Activists have secured board seats in 66 percent of all proxy contests this year up from 43 percent last year, according to Institutional Shareholder Services. Carl Icahn’s Icahn Enterprises firm has won board seats with no fewer than seven companies, a record. Each time he avoided expensive shareholder suits and caustic slugfests played out in the media.

Even Icahn’s tussle with Apple over its cash hoard has remained polite as compared to earlier decades. This of course has not been true of Icahn’s battle with Dell whose board remains resolutely opposed to all of his overtures. Still, he succeeded in stopping the Dell buyout, and the stock price was bumped up.

Although the more open attitude today is readily apparent, such embraces were not unknown earlier. Before HJ Heinz flew into the arms of Berkshire Hathaway, its CEO Bill Johnson sought to build a relationship with Nelson Peltz, whose activist firm Trian Group hectored Johnson on having the wrong recipe for Heinz’s growth. (Heinz was in the midst of a major restructuring at the time.) Johnson’s first encounter with Peltz at a dinner near the activist’s home in Palm Beach was less than cordial. But a subsequent dinner near Johnson’s home in Pittsburgh (Heinz’s headquarters) proved to soften both party’s attitudes.

At the time, Chief Executive asked Johnson for advice he would give a fellow CEOs who might face their own activists. Johnson said: “One, make sure the business is going well. Second, be open-minded and talk. Also be transparent. You want to listen to what activists have to say. Activism takes two forms. Some want to make the business better and grow the share price. Others have governance issues that may or may not be relevant to anything other than somebody’s personal agenda. Finally, the key thing when you have a disagreement is to present the facts. Don’t present an opinion. One of the things I’ve learned about activists is that they respond well to facts. They do not respond well to opinion.”

Read: https://online.wsj.com/news/articles/SB10001424052702303330204579248501076906672

Read: https://www.bloomberg.com/news/2013-11-26/wal-mart-to-microsoft-shifts-show-ceo-change-fastest-since-08.html

Read: https://chiefexecutive.net/h-j-heinz-chairman-ceo-bill-johnson-the-innovation-playbook

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