MD Genesis Corporate Solutions
There have been a lot of companies that have cleaned up shop and introduced new management to drive their businesses forward in a world that is recovering from the Covid Pandemic. What is the role of the CEO in this future?
But while many people believe this is because of poor performance, I recently read an article on the Forbes website which suggests that other forces are at play, and that the role of the CEO is becoming increasingly complex.
Historic highs
The article points out that for most workers, job turnover hit historic highs during the pandemic, as people jumped to gigs with higher pay, found new work after a layoff or quit to pursue their passions amid the Great Resignation.
But for CEOs, turnover actually declined during 2021, according to an analysis by the Conference Board provided exclusively to Forbes. The report finds that just 9.6% of companies in the Russell 3000 index had CEOs that passed the baton in 2021, down from 11.6% the year prior, as many CEOs were asked to stick around and steer their companies through not only a global pandemic but supply chain crises and civil unrest in a hyper-polarized U.S. society.
The article adds that the trend has begun to reverse in 2022, and CEOs are heading for the exits, too.
“What’s driving this is essentially a number of retirements that had been planned but had been put on hold because of the desire to avoid compounding the uncertainties of the pandemic with the uncertainties of succession,” says Matteo Tonello, managing director of ESG research at the Conference Board.
His analysis, a project conducted with data analytics firm ESGAUGE and executive search firm Heidrick & Struggles, shows that the succession rate of retirement-age of a CEO held steady in 2021 but grew rapidly during the first months of 2022. Industries such as utilities, health care and consumer discretionary, such as retail, are seeing the most pronounced uptick this year, the analysis found.
The article points out that even if turnover is rising again due to retirements, boards don’t yet seem to be forcing out their hand-picked CEOs. In 2021, the Conference Board’s data recorded a significant decline in successions among companies in the Russell 3000 with poorly performing stock performance—from 5.2% to 1.4%—and there was not a single known instance last year of a forced CEO dismissal among companies in the S&P 500.
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Less certain about their abilities
This uncertainty can also be found in company boards.
“I think it simply has to do with the fact that boards themselves are less certain about how to face today’s business challenges,” says Tonello. “As a result of that, they’re softening the performance metrics they’re setting for their own executives.”
The article points out that the analysis also found that boards are naming younger a CEO (the average age of Russell 3000 CEOs dropped slightly, from 57.2 years old in 2017 to 56.8 in 2022), increases in gender diversity have stalled (just three female CEOs were appointed in 2021, down from seven each in 2020 and 2019), and boards are naming insiders to the job at a record rate, the highest since 2011.
One trend that’s harder to gauge is how much turnover in 2022 is being driven by reasons besides an end to the delay in the golden years of a CEO or boards finally feeling enough certainty to make a change. But the overall succession rate projection for 2022 is higher, which may indicate that other leaders, Tonello says, “are clearly worn out. We hear it even anecdotally. … It’s been a very difficult and taxing time.”
The article adds that recruiters say they’re seeing the same thing. “It’s very hard to be a CEO under the best of circumstances,” says Bonnie Gwin, who leads the CEO search practice at Heidrick & Struggles.
“But when you intersect Covid and social unrest and social justice issues and inflation and global uncertainties, I mean, now you’re dealing with all these cross-currents. I’ve seen some people raise their hands to say ‘I want to accelerate my departure,’” she says. “And I’ve seen some people who say ‘I’m not sure I want to do that role.’”
Self-sufficiency
A few months ago, Turnaround Talk published an article which points out that decentralised business management is growing.
One of the common problems executives face is a lack of flexibility in their organizations during crunch time. Typically, crises blow up to critical levels before they come to the executives’ attention, at which point they must personally intervene. Ideally, crises should be nipped in the bud, and lower-level employees must deal with them proactively.
A centralized organization places an enormous amount of power in the hands of a few. The organization is structured vertically, leading to lengthy decision-making chains where every decision is second-guessed. In contrast, a decentralized organization prioritizes the opinions of people closest to stakeholders and subject matter experts. This results in a flat or horizontal organization that is nimble and addresses issues quickly.
Harvard Business Review notes that decentralized organizations work best when responsiveness is the top priority. An organization structured in this fashion also frees up executives’ time to carry out more value-added work instead of chasing fires all the time. Another benefit is that lower-level employees are empowered to think about the organization’s future instead of worrying about what their manager will think. The result is a flexible organization that is future-proofed.
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Promotes leadership skills
Organizations face employee churn all the time, whether due to a lack of challenging work or dissatisfaction with the company’s overall direction. Both of these reasons are interconnected. An inflexible organizational hierarchy leaves employees fighting to impress their managers instead of creating revenue-generating assets.
With power consolidated in the hands of a few, leadership skills are scarce. Thus, when top-level executives move on, the company faces a tough time replacing those who departed and must engage resources to locate and vet suitable leadership.
Promoting from within is ideal because long-term employees understand the company and its products well. They’ve witnessed the company’s processes from the ground up, which makes them ideal leaders. However, centralized organizations don’t provide low-level employees with the opportunity to ascend to leadership roles.
A decentralized organization forces employees to act as leaders. Thanks to greater autonomy and priority on responsiveness, employees must act decisively. Intrapreneurship increases, promoting creativity, and the organization is energized.
Empowered employees will automatically put forth ideas to make the company’s products more robust. The result is an upgrade in company-wide leadership skills and a better competitive posture.
Phahlani Mkhombo is the MD at Genesis Corporate Solutions and is a Senior Business Rescue Practitioner.
