Performance, Risk taking, Tenure of a CEO

It is important though to distinguish between performance of the CEO and the business environment. Any company that sells petroleum and diesel today is underperforming. Is that the leader’s fault or a factor of the business environment?

Every CEO has to face up to the board at different times. As long as you can give the board the confidence that even a loss is nothing that a new CEO can fix, you’re safe.

Sometimes even with the board’s backing, it takes a go getter CEO to push his case through. Uday Singh was hired as MD of Sony Pictures 12 years ago with a specific agenda to “bring the company kicking and screaming into the 21st century”.

Even though it was part of his mandate he still had to wait for ten years to convince the board that Sony was ready for local content production. Sony Pictures eventually released the locally produced film last year. So what happens to a CEO’s risk taking spirit when his survival is so closely linked to performance? No guts, no glory is the consensus, but fearless risk taking has to be backed by the ability to rapidly learn from errors.

Time is a factor you have to be aware of; sometimes risks not taken lead to more failures than those taken when opportunities for correction were easier and cheaper.

In 2001 in one of the biggest gambles of his career the CEO convinced his board to bid $250 million for the satellite telecast rights to two cricket World Cups. He survived another tenure extension and it marked the beginning of Set Max’s bullish alliance with cricketing. The recently concluded IPL tournament saw the revenue market share of Set Max rise from 5.7% to 28.8% during the period. Sometimes, it is staring at the exit door that brings out the entrepreneurial spirit in a CEO.

Of course, in most cases the exit door is brought closer by the CEO himself. It is said in the US, CEOs prefer short tenures because the terms of exit are so much more favorable jokes a well known Indian CEO.

Some CEOs laugh off the probability of ever exiting for money. There are other more real concerns. With boards planning better for talent shortage by developing deep bench strength, how does a long-staying CEO retain his successors? One CEO always had a Number two and sometimes they get bored and walk away.

In a growth-oriented industry scalability of role does not have to depend on whether you are called a CEO or not. If it weren’t for the fact the telecom industry is so vibrant, a CEO would have far outlived his usefulness.

Still, even long haul CEOs are not in agreement on the ideal tenure. Survival should never be a strategy by itself, building the institution should be the only strategy. A rule of thumb for longevity is some times called the ‘3 Fs’ – function, fame and finance. The CEO who chases fame will never succeed, the CEO who chases finances does well for four years and moves on, the CEO who chases functional excellence and satisfaction outlives the rest.

There are seasons to a CEO’s tenure. Patterns of executive attention and behavior have to change as the company grows, the sector matures and competition intensifies. A CEO cannot stay static.

The board always prevails. Understand that a tighter relationship between CEO and members of the board is not just because corporate governance structures or regulatory framework requires it, but because it makes for good business.

The underlying goal is shareholder value creation. Assiduously avoid meeting any individual agendas. It’s about a common agenda that is unambiguous and non-negotiable.

First put the structures and enablers within the organization to create positive shareholder value, not decide the value and work backwards from there. Get the fundamentals of the business right – Process maturity, speed, agility, training and education, minimizing attrition otherwise outcomes are unpredictable and the market punishes.

All organizations that ever succeeded made mistakes but transparently made sure they were learning. No institution benefits from punishing risk takers.