FORTUNE ON WHY CEOs FAIL
In our role as providers of senior executive retained search services, we have
the unique perspective of talking to BOTH sides of a failed relationship. We
find the enclosed FORTUNE article a little simplistic, but worth your reading.
What do you think? e mail us at firstname.lastname@example.org. If you want us to publish your
response, we will. Laurence J. Stybel,Ed.D. & Maryanne Peabody STYBEL
PEABODY LINCOLNSHIRE Boston, MA e mail: email@example.com THE BOARD OF DIRECTORS
CAREER RESOURCE CENTER: www.stybelpeabody.com tel: 781-736-0900 SINCE 1979,
HELPING COMPANIES ACHIEVE "SMOOTH TRANSITIONS" FOR VERY SENIOR LEVEL
PEOPLE: retained search, coaching, and retained search. FORTUNE Vol. 139, No. 12,
June 21, 1999 Why CEOs Fail It's rarely for lack of smarts or vision. Most
unsuccessful CEOs stumble because of one simple, fatal shortcoming. Ram Charan
and Geoffrey Colvin What got Eckhard Pfeiffer fired? What fault did in Bob
Allen? Or Gil Amelio, Bob Stempel, John Akers, or any of the dozens of other
chief executives who took public pratfalls in this unforgiving decade? Suppose
what brought down all these powerful and undeniably talented executives was
just one common failing? It's an intriguing question and one of deep importance
not just to CEOs and their boards, but also to investors, customers, suppliers,
alliance partners, employees, and the many others who suffer when the top man
stumbles. The answer even matters to the country; America is the world's most
competitive nation, thanks in large part to the overall high quality of its
CEOs. If people knew how to spot CEOs headed for failure-even if the company's
results still looked fine-they could save themselves much pain. Trouble is,
they usually look in the wrong place.
Consider the Pfeiffer episode. The pundits opined, as they usually do in
these cases, that his problem was with grand-scale vision and strategy.
Compaq's board removed the CEO for lack of "an Internet vision," said
USA Today. Yep, agreed the New York Times, Pfeiffer had to go because of
"a strategy that appeared to pull the company in opposite
But was flawed strategy really Pfeiffer's sin? Not according to the man who
led the coup, Compaq Chairman Benjamin Rosen. "The change [will not be in]
our fundamental strategy-we think that strategy is sound-but in
execution," Rosen said. "Our plans are to speed up decision-making
and make the company more efficient."
You'd never guess it from reading the papers or talking to your broker or
studying most business books, but what's true at Compaq is true at most
companies where the CEO fails. In the majority of cases-we estimate 70%--the
real problem isn't the high-concept boners the boffins love to talk about.
It's bad execution. As simple as that: not getting things done, being
indecisive, not delivering on commitments. We base our conclusions on careful
study of several dozen CEO failures we've observed over the decades-through our
respective work as a consultant to major corporations and a journalist covering
them. The results are beyond doubt.
Here's what we aren't saying: That failed CEOs are dumb or evil. In fact
they tend to be highly intelligent, articulate, dedicated, and accomplished.
They worked hard, made sacrifices, and may have performed terrifically for
years; Pfeiffer, for example, transformed the company more than once and
multiplied Compaq's revenues, profits, and market values, a remarkable
achievement. And failure as a CEO is never final. These are strong people who
can come back successfully in other roles.
Nor are we saying execution is the only reason CEOs falter. Sometimes they
adopt a strategy so flawed that it's doomed, or they refuse to confront reality
in their markets, or they antagonize their board. And when a CEO really goes
down in flames, there's almost always more than one reason. But business people
learn to focus on the main thing, the explanation that accounts for most of
what they're worried about, and in the realm of CEO failures that explanation
It's clear, as well, that getting execution right will only become more
crucial. The worldwide revolution of free markets, open economies, and lowered
trade barriers and the advent of e-commerce has made virtually every business
far more brutally competitive. The frantic spread of information through
technology is making customers everywhere more powerful and pushing toward the
commoditization of everything. Institutional investors now own more than half
the equities in U.S. corporations and relentlessly demand results. Indeed, two
of the nation's preeminent headhunters, Tom Neff and Dayton Ogden of Spencer
Stuart, calculated recently that while average CEO tenure in the biggest
companies has remained fairly steady at seven to eight years, those who don't
deliver are getting pushed out quicker. (See the graph later in the article.) A
new academic study reaches the same conclusion-poorly performing CEOs are three
times more likely to get booted than they were a generation ago. Even if their
boards spare them, their companies often get taken over, like Digital Equipment
under Robert Palmer and Rubbermaid under Wolfgang Schmitt. Bottom line:
whatever cover CEOs used to hide behind has been blasted away. Either they
deliver, soon, or they're gone.
So how do CEOs blow it? More than any other way, by failure to put the right
people in the right jobs-and the related failure to fix people problems in
time. Specifically, failed CEOs are often unable to deal with a few key
subordinates whose sustained poor performance deeply harms the company. What is
striking, as many CEOs told us, is that they usually know there's a problem;
their inner voice is telling them, but they suppress it. Those around the CEO
often recognize the problem first, but he isn't seeking information from
multiple sources. As one CEO says, "It was staring me in the face, but I
refused to see it." The failure is one of emotional strength.
Five Signs of Failure: A Self-Test for CEOs Ram Charan and Geoffrey Colvin
Why CEOs Fail I'll Even Pay Ya to Leave - Geoffrey Colvin -Why failed CEOs
take so much of their shareholders' wealth with them.
- How's your performance-and your performance credibility? Of course you
have to deliver results, but you're unlikely to do so if you haven't developed
performance forecasts for the next eight quarters, not just the usual four. You
should have ideas now for changes you may have to make six to eight quarters
- Are you focused on the basics of execution? You should feel connected to
the flow of information about your company and its markets; that includes
regular, direct interaction with customers and front-line employees. Are you
following through on all major commitments from your direct reports? Are you
listening to the inner voice telling you whether these things are going well or
- Is bad news coming to you regularly? Every company, even the most
successful, has bad news, usually lots of it. If you're not hearing it, are you
letting the trouble build? The information you get should force you to take
- Is your board doing what it should? That means evaluating you and your
direct reports, asking for information about your markets, and demanding a
succession plan-but not formulating strategy (your job) or trying to manage
- Is your own team discontented? Top subordinates often start bailing out
before a CEO goes down.
It makes shareholders steam: When a CEO gets shoved out for poor
performance, why does the board so often reward him with a mammoth severance
package? EDS fires Les Alberthal and announces that his exit pay will knock
down the quarter's earnings 12%. Waste Management crashes, and former CEO Dean
Buntrock gets a $14 million goodbye. What's going on?
In this, as in most matters of CEO pay, there's more happening than meets
the eye. Yes, the boards may have been profligate-but then again, maybe not.
In many of the highest-profile cases, directors were simply abiding by
contracts negotiated months or years earlier. That was the case with John
Walter at AT&T (who left with $25 million) and Michael Ovitz at Disney
($100 million), both of whom were hired as president and lasted less than a
year. Attorney Joe Bachelder, America's No. 1 negotiator of top CEO employment
deals, estimates that most Fortune 500 CEOs now have contracts, and many have
learned that the time to negotiate severance is when the board still loves you
and divorce seems unthinkable.
When a divorce does happen, much of what a CEO gets is what he would have
received upon ordinary retirement. In Buntrock's case, most of that $14 million
was a garden-variety supplemental retirement plan that had been building for 30
years. Even so, some Waste Management board members believe that Buntrock ought
to contribute at least some of his pension toward the settlement of lawsuits
stemming from accounting irregularities during his tenure.
With a contract, whether the booted boss gets a lot or a whole lot depends
on whether he was fired "for cause." If so, he'll probably have to
forfeit his unvested restricted stock and options and be forced to exercise
vested options almost immediately, a penalty that could cost him tens of
millions of dollars. Directors may believe they had ample cause for firing the
S.O.B., but proving it is tough, so they often give him the big money and get
it over with.
Indeed, getting it over with-whatever the price-is sometimes the best thing
for shareholders. Look what happened when Joe Antonini left Kmart, EDS fired
Les Alberthal, Bill Smithburg departed Quaker Oats, and GM booted Bob Stempel.
In each case the stock jumped immediately after the change at the top was
announced-even though no successor had been named. That is a pretty clear
indication that investors had already made up their minds that the CEO had to
go, even if the board hadn't. And the severance package was worth every penny.