It’s not much fun to be a CEO today. Daily headlines illustrate how CEOs are exiting corporations en masse—both voluntarily and involuntarily—and the articles read like a Who’s Who of America’s top executives.
One out of six CEOs who left their posts since September 2001 were at the helm of high-tech companies. The slew of departures, prompted by a variety of reasons, provides new opportunities for today’s CIOs, says John Challenger, president of Chicago-based outplacement firm Challenger, Gray & Christmas.
Reasons for the turnover
According to Harvard Business School professors Rakesh Khurana and Nitin Nohria's new study, "The Performance Consequences of CEO Turnover," company boards of directors and shareholders at corporate giants, such as Procter & Gamble, American Express, IBM, and AT&T, are ousting incumbent CEOs in hopes of improving company performance. The researchers divide the executive departures into four categories:
- A voluntary, or natural, departure of a CEO who is succeeded by another company executive
- A natural departure in which the CEO is succeeded by an outsider
- A forced departure in which the CEO role is taken over by an insider
- A forced departure in which the CEO is replaced by an outsider
The study indicates that when a natural departure is followed by the promotion of an internal executive, no change of any statistical significance occurred in the company’s performance. Replacing a retiring CEO with an insider represents support for the status quo, so performance tends to remain static, according to the researchers.
Challenger’s firm has been tracking and researching CEO departures since 1999. During that period, 1,539 have left their posts. The high point of departures in 2000 was when 129 left in one month. In January and February of 2001, 119 CEOs left in each month.
What the departures mean for CIOs
With so many CEOs clearing out their desks, CIOs find themselves in an enviable, if not strategic, position with two options, said Challenger. The first option is to sit back and wait for new management to take the helm. The second is much more proactive: CIOs can take advantage of the CEO transition period to strengthen their position by building alliances and taking on new responsibilities.
Yet Joe Mancuso, president of the CEO Club, a national organization of CEOs based in New York City, warns that CIOs can often also be in a precarious position when a CEO leaves.
As CIOs are now part of the executive corporate branch, it’s not atypical to discover that they’re also asked to leave, or forced to resign, when a CEO is leaving. And, even if they remain, navigating new management can be a rocky transition.
“Until the CIO knows what’s ahead, it can be a tense and nerve-wracking period,” explained Mancuso. “In fact, it could be several months before he or she knows what’s happening. You can’t assume that there is a firm plan in place.”
Changing economic conditions will bring more opportunities
Gerald Meyers, former CEO of American Motors and author (with Susan Meyers) of Dealers, Healers, Brutes and Saviors: Eight Winning Styles for Solving Giant Business Crises (Jon Wiley; $22.36), agrees with Challenger and insists that corporate chaos breeds opportunity for many employees, especially top executives like CIOs.
IBM is a classic example, Meyers says. Big Blue got off track after distinguishing itself as the pioneer computer manufacturer. It was top heavy with executives, and its products no longer led the technology market. When Louis F. Gerstner, Jr., replaced John F. Akers as CEO in 1993, the former computer giant was in serious financial straits. Gerstner reinvigorated the company with new products and management. His appointment also presented an incredible opportunity for senior management, especially IBM CIOs, who recognized the change of command as an opportunity to demonstrate their talents.
In executive-change scenarios like that of IBM, dealing with hardship separates the followers from the leaders, Meyers asserts. “Crisis is the ultimate networking opportunity,” he said. “Do the best you can, and you won’t be forgotten.”
While there is nothing new about corporate upheaval and top-tier management changes, the high CEO turnover is a unique development that many believe is prompted by the current economic climate. Top executives at the recent World Economic Forum remain skeptical about 2002’s projected fourth-quarter rebound. Here are some of the opinions expressed by industrial leaders at the Forum:
- Microsoft Corp. Chairman Bill Gates does not predict a broad economic recovery in the United States this year, countering optimism tied to data indicating a rebound in the second half of 2002. Yet, he believes that Europe's prospects may be a little more positive, pointing to a rebound in its overall economy. Michael Ruettgers, chairman of EMC Corp., the largest supplier of storage equipment used to house corporate data, is also bearish about the economy.
- Yet many economists at the conference believe that a turnaround is possible in 2002. Conference Board Chief Economist Gail Fosler projected that the economy would stage a healthy rebound, with the gross domestic product growing by 4 percent in 2003.
- Most tech leaders and economists believe that the downturn is a business-led recession and will require a rebound in corporate spending before the general economy gets a lift. The mood among high-tech leaders reflects a caution born of the ongoing hangover felt from years past, when a seemingly limitless supply of capital, a wide latitude for delayed profits, loose accounting standards, and megamergers became the rules of the game.
- Analysts say that a rebound in the high-tech economy will require more than just a rebound in the psychology of economic well-being. It will take a new round of product innovation to spur increased demand by businesses and consumers.
Challenger agrees that the unstable economic conditions will continue and cites the telecommunications industry as a market segment that has been in the doldrums for some time.
"We will likely continue to see a lot of volatility within the leadership ranks of these companies as they try to find a solution to their problems,” he said. “It has a long way to go to shake itself out and settle down from the mergers and consolidations that have marked it for so long.”
Yet, all industries will eventually turn around, Challenger said, noting that the current business climate presents both challenges and opportunities for CIOs.
“It’s not just about holding on to a job. Rapid-fire change also spells opportunity many CIOs never thought about,” he said.
Are you eyeing the CEO office?
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