Survival of a CEO

The CEO of Sony Entertainment Television, now known as Multi Screen Media, likes changing his mobile caller tunes, sometimes several times a week. He is far more cautious with job changes. This is his fourteenth year as CEO of the company, never mind that he says “at least three times in my career I thought the end had come.

In an industry where three year CEO tenures are par for the course Sony’s CEO tenure seems rare. World over, shortening CEO tenures are changing the way companies view business growth cycles and boards are pro-actively adopting survival strategies.

According to a study of CEO turnover in the world’s 2,500 largest publicly traded corporations, annual CEO turnover has grown 59% from 1995 to 2006.

Long CEO shelf life has become a rarity. A three or four year tenure is not unusual anymore. This has meant a jump in revenues from the company’s executive search business in the past few years.

Being wedded to one company is no longer the dominant idea. Its ‘normal’ to have eight changes within a 30-year career span. But for the CEO of a multinational company in India, a lot depends on managing the dynamics between the company, the sector, the economy and society at large.

Jack Welch spent 20 years taking General Electric from a $14 billion company to a $400 billion company. So what makes someone like Welch, and closer home, ITC’s YC Deveshwar, an anomaly? The fact is, surviving as a CEO for more than ten years is tough.

The CEO of Sony will tell you that outliving his industry counterparts has taken resilience. He has led his company through a roller coaster ride, from humungous valuations to erratic ratings, the exodus of senior managers, edgy investor relations and eventually some bold gambles that paid off.

The CEO’s is a very demanding environment and there is very little that prepares one for the job. One needs enormous measures of self reliance to survive the pressure.

World-wide , the greatest pressure on CEOs has been in form of shareholder activism, though this is not the case in India. The pressure on a CEO is so much sharper today that it is no longer about being evaluated by a promoter family. Changing business cycles and a high degree of transparency in corporate governance require CEOs to be on judgment all the time.

CEO&MD of Tata Consultancy Services (TCS) since 1996, preparing shareholders during periods of concern is “never fun”. Growing concerns over the strengthening rupee and an impending recession in the USA recently led TCS to fire 500 employees and cut performance-linked pay for the rest. What mollified investors at this point, was the consistency between communication and action, backed by hard metrics.

When investors start voting with their feet, boards are likely to insist that CEOs deliver acceptable shareholder returns. Even though he had the support of his board, ex-Citigroup chief had investors baying for his blood in his fourth year as CEO, when the company suffered big losses on its mortgage-backed securities business.
Most Indian CEOs who have had a long innings would have experienced similar run-ins with investors.

The CEO of Shoppers’ Stop for 17 years, recalls the company’s first divestment of 14% of promoter-held equity in favor of strategic investors in 2000. Aggressive expansion followed, incurring massive expenditure, and Shoppers’ Stop posted considerable losses for two consecutive years.

It was such a challenge to convince investors that it was a short-term blip. The CEO promised them they would turn it around in a year and they did. In periods of underperformance, a CEO have to be able to anticipate, prepare stakeholders looking at a solutions based approach.

Managing shareholders is easier when a CEO has the board on his side. Aided by changes in governance regulation, boards are increasingly prepared to boot out CEOs for poor performance. A CEO who can’t manage his board will find it increasingly difficult to build constituency support to lead the company through a competitive environment. What’s more, boards are more likely to evaluate the CEO based on future relevance to the business, looking at the next five years and not just past performance.