CEO: high-risk profession

A dead king, a king.

Without regard.

As if it were the Middle Ages, companies want quick results and, as their patience has diminished due to the pace set by a society permanently connected to mobile phones, they decapitate leaders who do not deliver them as quickly as desired.

If these companies are also in the hands of investment funds or large investors, who consider that they are well managed when changes are agile, the replacement is faster if possible.

Guido Stein, professor at IESE Business School, puts these arguments on the table to explain the movements that are taking place at the top of listed companies around the world, which have made “the CEO profession now high risk.” ”.

If not, tell Sam Altman, head of OpenAI, the creator of Chat GPT, who was fired last November by the company's board of directors only to be rehired five days later.

Or Robert Iger, who after retiring from Disney, leaving it in the hands of a disappointing replacement, has had to return to lead the kingdom of magic to right its results.

These round-trip replacements—boomerang they call them—are not very common, but they also occur in an environment in which the 178 CEOs who left their positions in global listed companies in 2023 “reflect the recent trend of high turnover of executive directors”, as reflected in the global index that measures this rotation in the executive selection firm Russell Reynolds.

“A level that is attracting the attention of investors and, as a result, boards of directors will have to redouble their succession plans.

And fast,” recommends the talent scout.

Organizations such as Unilever, Adidas, Starbucks, CNN, Lazard, Domino's, Tupperware, Maersk or BP changed their top leaders in 2023 and other large multinationals such as Morgan Stanley, Levis Strauss, Goodyear, Costco, Paypal or H&M have done so in the month that has passed this year.

The relays in the domes do not stop.

“If until 2012 or 2013 the turnover in the 1,200 global companies that we studied was almost flat, since 2014 an increase has begun to occur that is accelerating and as of 2019 it gained even more speed, just as has happened in the last two years.

2021, 2022 and 2023 have been records in the movements in the global management leadership,” explains Luis Urbano, partner at head hunter Heidrick & Struggles, who compares the 33 appointments of CEOs registered by his organization in 2014 with the 96 changes that those 1,200 companies analyzed have participated in the first half of 2023 alone.

Spain is no stranger to this trend.

A third of publicly traded companies have appointed new CEOs between 2019 and 2023, according to executive search company Korn Ferry.

“It is a very significant percentage, but the ratio has remained more or less stable since 2019, except for the decrease in the year of the pandemic, which was offset by greater increases in the following two years.

In general, around 10% of company managers rotate annually,” says Jesús Marrodan, partner of the company.

The protagonists

Banco Santander, Unicaja, Tubos Reunidos, Pescanova, OHLA, Indra, Ezentis, Grifols, Cellnex and Airtificial put a new face on their management team last year: Héctor Grisi, Isidro Rubiales, Carlos López de las Heras, Jorge Escudero, Luis Fernando Martín Amodio, José Vicente de los Mozos, César Revenga, Thomas Glazmann, Marco Patuano and Guillermo Fernández de Peñaranda were chosen.

And this 2024, at least Bankinter (Olga Ortiz) and Viscofán (José Antonio Canales) have already announced replacements.

The leadership chair is hot.

In fact, according to the study Succession and Good Government, prepared by Luis Huete and Antonio Núñez, based on 3,300 surveys of companies of all types, not only listed on the Stock Market, almost half of them (47.2%) have changed CEO in the last three years.

“Until the pandemic, we were facing a process of shortening the average tenure of the top manager in organizations because business cycles are accelerating [from 9.3 years in 2017 to 7.2 in 2020, according to Russell Reynolds ].

With Covid, this trend slowed down and in 2022 and 2023 it has been activated again as a result of executive positions having to adapt to changes in business strategy,” explains Mario Lara, director of Esade in Madrid.

Lara sees a variation in the reasons that are forcing the replacements at the top: if before the pandemic the reputational issues - in general scandals such as the one recently carried out by the former CEO of BP, by not being transparent with the relationships that maintained with colleagues from his company—were the ones that forced the replacement of a good part of the leaders, now these reasons are losing strength and in their place the need to have a manager for a different cycle is gaining momentum.

This is the reason why the Cellnex board of directors decided to remove Tobías Martínez and appoint Marco Patuano, for example.

Just like the traditional changes in the shareholding (here OHLA is the example).

The study by Huete and Núñez adds the lack of strategic alignment or the tense relationships with the main

stakeholders

or interest groups (see the case of Ignacio Mataix at Indra, who was also addressing a new business stage, or that of Manuel Menéndez at Unicaja ).

In any case, for the director of Esade in Madrid, the poor results of the organization have always been the main reason for dismissing the first executive (for example at Grifols, with several remodelings).

Pedro Teixeira, general director for Spain and Portugal at Continental, is clear: “The objectives of a leader are two: the first is to obtain results.

If you are not able to achieve them, you already know what will happen: that very soon you will stop being a leader.

And the second is being able to develop the teams' skills."

The same can be said when the company does not reflect its value on the stock market, which is why the two activist investment funds in Danone's capital managed to remove Emmanuel Faber in 2021.

But you have to be careful.

And ensure that the succession in the most critical position of an organization is orderly.

Because when the change occurs hastily, the company is penalized by the market.

Unplanned replacements decrease the stock market value of companies between 4% and 5%, says Jesús Marrodan.

And not only that.

Furthermore, it takes firms on average 18 months to recover from the crash.

The punishment is considerable.

Forecast

For this reason, all the experts consulted recommend that corporations develop succession plans so that this eventuality is covered, as advised by the National Securities Market Commission and almost all regulators in the world.

However, only 40% of Spanish companies have them, indicates Antonio Núñez, partner in charge of the selection firm Parangon Partners.

Cases such as Cellnex have made it clear that the replacement was not planned, after needing six months from the resignation of Tobías Martínez to find a replacement, according to the experts consulted, who do not see a good example in Indra either.

“Cases like these indicate a lack of foresight and this affects the value of companies,” they argue.

Investors are increasingly asking about the succession plan, admits Carlos Sáez Gallego, general director of Georgeson for Spain and Portugal.

"The one that affects the chief executive has to be perfectly tied and designed so that the company is not left headless and this generates uncertainty among investors."

To adequately address this process, executive search and selection firms (which also carry out consulting and, therefore, these plans) advise starting to prepare them two or three years before the departure of the CEO.

“Spanish companies until recently managed the succession of the CEO as a contingency, but now they are beginning to worry about designing the succession plan,” says the Korn Ferry partner.

“You have to take into account the succession protocol and, in parallel, the contingency plan because sometimes there is no time to prepare it,” explains Mario Lara.

The replacement of Dolores Dancausa as Bankinter's first executive and that of Domingo de Ampuero in Viscofán are examples of an orderly succession, according to specialists.

As was also the replacement of Pablo Isla at the head of Inditex.

Many of these successes, most surely, have to do with the origin of the chosen one.

If he is a person who is promoted within the organization, he has a better chance of fitting in because he already knows her and him.

Currently, 77% of CEO appointments in companies listed on the main global stock markets come from within the company.

“The processes that end up appointing valuable internal successors are the best, since the risk of external ones is very strong,” says Ramón Gómez de Olea, partner in charge of Russell Reynolds in Spain.

In addition, they are less expensive and remain in place 1.4 years longer on average.

There is a clear relationship, in the words of Arturo Llopis, partner of its competitor Spencer Stuart: “When there is a crisis, the CEOs come from outside and, when there is not, like now, they come from within the organization.”

Traders on the New York Stock Exchange, on January 3.ANGELA WEISS (AFP/GETTY IMAGES) (AFP)

Precipitation

Changing the head of a company is a risky decision.

Because it needs to fit into the company, with the staff, the culture... that is why it must be a calm decision, according to Guido Stein.

“Hiring quickly and firing quickly is poorly linked to obtaining sustainable results.

And although there are people who lead poorly and it is necessary to change them, haste often leads to making poor decisions,” he adds.

Sometimes you have to take them because, for example, in sectors such as technology or energy, salary inflation is such that executives jump from one company to another at the stroke of a checkbook without the possibility of carrying out a project.

This is explained by Carmen Tuñas and Isabel Reija, partners of the executive selection company Amrop Spain, who are aware that the appearance of a head hunter in the lives of senior managers is another reason for them to embark on a new career. company.

They agree with Miguel Pardo, president for Portugal of Vistage, the largest association of directors in the world with 37,000 members in thirty countries, that rotation in medium-sized companies is seen mainly in the management committee, "so that the CEO is finding it difficult to attract people.

He does not locate candidates who can replace him.”

Because, as the IESE professor indicates, “in many companies, before sacrificing the leader, there is a very marked mobility in the management committee.

And there are figures like the top executives of Iberdrola, ACS, Telefónica or Naturgy who survive many years in office by changing those below them.”

“The figure of the CEO has a term.

Although there are successful leaders who are 20 years old, generally their life is much shorter [almost 12 years in Spain and 7 in the United States, according to Korn Ferry].

When you join a company you have a lot of impact, but then that impact becomes operational,” says Luis Abad, CEO of Cap Gemini.

And it is a role that is changing as a consequence of challenges that have multiplied considerably in recent times and that have to do with issues ranging from achieving zero emissions to dealing with high inflation, with ongoing supply chain problems. , the emergence of artificial intelligence or the possibility of restructuring given the uncertain economic prospects.

Faced with so much pressure, Russell Reynolds says CEOs are increasingly stepping down, citing pressure or other vital priorities.

We must not forget, indicates the president of Vistage, that 72% of leaders suffer heart attacks, strokes or divorces due to their way of life.

For this reason, the headhunter adds, more and more boards of directors are looking for less visible and less famous managers, who will lead a team, set the agenda, but will no longer be the only ones who make the decisions.

“The CEOs of the future may be less visible than their predecessors, but they will actually be even more powerful, having the strength of numerous leaders behind them,” adds Russell Reynolds.

Salaries return to the fore

A few days ago the second vice president and Minister of Labor once again opened the melon of the salaries of senior executives.

Yolanda Díaz referred to “the very high salaries of many members of the business leadership” and encouraged the start of a debate in Spain around them.

Statements that were quickly branded as populist by the president of the CEOE, Antonio Garamendi, who stated that Díaz's implicit suggestion to intervene in these salaries is “banana republic-like.” 

Although many of the sources consulted agree with Garamendi, it is also true that remuneration inequality [in 2022 the highest paid executive directors of the Ibex 35 earned 81.5 times more than the employees of the companies they direct] is of increasing concern. .

“Since Covid, we have seen how investors have focused on ensuring that the CEO's remuneration is aligned with that of the rest of the staff and also that the pension plans or dividend policy are consistent with all stakeholders.” , maintains Carlos Saez, director of Georgeson.

“However, there is no defined proportion that is optimal,” he adds.

“It is a sensitive topic.” 

Salaries are one of the issues that investors penalize the most at shareholder meetings, says Saez.

In the 2023 meetings, the dissent regarding them was mainly related to the lack of transparency and extraordinary contributions.

“They don't like it.

They are red lines, even though they are included in the corporate compensation policy,” the manager appreciates. 

Companies such as Naturgy, Cellnex or Indra had rejection levels greater than 20% of the votes.

“You have to maintain proportion and have a little shame,” encourages IESE professor Guido Stein, who invites companies and managers to review their emoluments. 

Women: few, with more layoffs and less time in office

Being a woman is a punishment.

Whichever way you look at it, the gender differences in global business leaders are like peering into the abyss.

Penalty after penalty.

But let's start at the beginning: last year only 22 people appointed to lead global companies were women out of the 178 in total included in Russell Reynolds' study.

Every year there are usually advances in equity, although they are still far from sufficient anywhere in the world.

Because it's not just that fewer women are hired to lead corporations.

Furthermore, women are fired from their positions more frequently than their male counterparts: specifically 34% compared to 25% of them.

Hence, it is not surprising that the permanence in the position of CEO is more ephemeral for them.

The head hunter firm assures that the overall average duration in the position is 4.1 years compared to the 8.7 years spent by their male counterparts.

The gap in the companies of the American S&P 500 index is even higher: female managers held their positions for 2.1 years while their male peers did so for 9.9 years.

And this is due, the company explains, to the fact that women tend to be appointed to these positions in especially difficult times for organizations.

“Female CEOs are penalized more severely than men in the media for two things: poor performance or any perception of arrogance or limelight-seeking,” explains Laura Sanderson of Russell Reynolds in the UK.

“If you are a woman you are under pressure to visibly perform better, and woe betide you if you seem to enjoy the CEO role too much,” she says.

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