Short-term Pressures and the CEO’s Dilemma
Short-termism has become a trend that makes it harder and harder to maintain long-term visions and goals for companies. Each new CEO will want to stamp their authority, their new mark, on the business they now lead.
At times, it feels one bad month can undo years of progress, with investors and shareholders increasingly unwilling to quietly support the direction of the businesses they’re invested in.
The growing trend of so-called activist investors leads to an ever-increasing wobbly chair at the top table for any high-profile CEO and raised its head again this month when Browning West, one of Domino’s largest shareholders, with a 5% stake in the business, publicly urged the global pizza giants to rethink short-term strategies to try to recover their position, which sees shares at their lowest level for ten years. Browning West, in a damning open letter to the board, insisted that it should return some £100m, suggesting its existing expansion plans were questionable without fresh private equity partners.
Equally, Elliot Management, in purchasing $4bn worth of shares in PepsiCo this summer, did so with a list of operational recommendations in another open letter to the board, effectively urging Pepsi to be ‘more like Coca-Cola’ in mirroring the latter’s moves to re-franchise bottling operations and shed underperforming brands as a move to improve margins. Notably, Elliott Management, the activist hedge fund led by billionaire Paul Singer, isn’t pushing for board seats but is emphasising strategic and operational restructuring from the outside in.
The Fragile Tenure of Modern CEOs
One can see how these public moves, openly questioning strategy or direction, will easily lead to boards either rethinking or second-guessing their next moves when it comes to the most important hire in the business, that of CEO. Twitchy trigger fingers, with those same CEOs in the hairline, might only become even more jittery. And there’s plenty of evidence to suggest the trend isn’t a one-off.
High-profile cases of brief tenures are plentiful. HSBC’s Stateside CEO, Lisa McGeough, who was appointed in January, was gone by August. Meanwhile, Swiss food giant Nestlé was forced to remove their second CEO in a year when they removed Laurent Freixe this month after revelations of an inter-office relationship was uncovered. This has only compounded Nestlé’s worrying performance and stock value retraction.
Lauren Freixe’s indiscretions at Nestlé underline brands’ deeper commitments to a far cleaner, more wholesome company culture and the paramount value it puts on those at the top of the tree living and breathing the values of the company. It’s easy, therefore, to see why boards and stakeholders might well shy away from hiring perceived mavericks into crucial roles. But does a ‘safe hands’ then equal directional paralysis for companies who need an individual to enthusiastically drive change?
The Rising Stakes for CEO Selection
It’s not an easy balance to strike. So how – and who – top organisations recruit into the corner office you recruit becomes ever more challenging. Unsurprisingly, the task is increasingly being handed to the experts. So the headache in weeding out the bad ones becomes a huge challenge to identify, engage and screen potential candidates for the big chair.
As well as stakeholder and activist investor pressure, we’re also seeing a growing trend for a business’s most powerful customers also leaning into who, or what traits, they want to see at the top of the tree. This is particularly pertinent in retail, where the power of the supermarkets and their demands on their suppliers is a well-trodden path.
Anything going wrong in the boardroom of a supplier has the ability to directly impact the decision-making of the consumer pushing their trolley down the aisle. That’s a lose-lose for everyone to suddenly face the threat of a lucrative supermarket delisting because of the individual you hired, who doesn’t share the values or culture.
A top CEO of a high-profile business has become an always-on role, where ‘bosses’ aren’t necessarily now just your colleagues in the boardroom. Now, those CEOs successfully working their way through a minefield of shareholders, of activist investors, of key customers, of disapproving staff members, and of an exacting executive process to secure the seat in the first place? They’re worth their weight in gold.