Chief Executive Officer & Board of Directors
Just before we closed down for the Christmas holidays I noticed a frenzy of headlines about executive pay and performance. And while it's tempting to make assumptions about the kind of "different" leadership we need post-crisis, I would warn that it's not as easy as changing the CEO or keeping them honest and humble by cutting their pay.
I liked the comment by Malcolm Gladwell in a podcast interview I listened to during my morning run at the height of the crisis. It was so good I played it back and wrote it down:
"Rather than joining the mobs seeking to hang evil CEOs from the nearest lamppost, we should all step back, take a deep breath and find the procedural flaws in the sytem that can be fixed," Malcolm said. "Tinker with the risk models, increase the regulatory oversight and the problem is solved ... "
I don't agree with Malcolm that it's about a simple fix to a model. But I do agree that sacking the CEO isn't the answer. My belief is that leadership is the issue, and my caution is that we're making some wrong assumptions about leadership.
Assumption 1: you can judge the leadership skills of executives by how well they're doing.
Reality: Even the best CEOs need time to learn. Changing the leader is a short-term fix. Organizations need CEOs who know them intimately, which takes five to seven years. Yet CEO tenure is dropping. I would suggest that short-termism is habit-forming - you start expecting rapid results - and is not good for the long-term stability and prosperity of the company.
Assumption 2: you can always find a more competent CEO to replace the struggling incumbent. Reality: This is tempting in a market swollen with candidates. But CEOs are rarely generalists. Most are specialized experts who operate in minuscule talent pools. We have carried out several recent searches where there were three serious candidates, and never more than five. For example, there are only about five or six people in the world who could head one of "too big to fail" financial institutions.
Assumption 3: Money motivates. Reality: Yes it does, because not many CEOs are prepared to carry out their duties for free. But the word "compensation" is apt - compensation for canceled weekends, canceled vacations, barely seeing your kids grow up, plus the intense and constantly invasive pressure of the job. The bottom line is that in a free market economy, CEO pay is subject to market forces. And in a crisis, handing an incoming CEO a possible poisoned chalice often means paying them for reputational risk!
The debate will go on. My contribution to it is simply that all assumptions become dangerous when we forget to question them.