By Andrew Moore, Director DAV Management
The recent fiasco with Philip Green around the BHS collapse and the pension’s debacle has yet again fuelled the argument about the rewards of top executives. Given the frequency of such occurrences, you could be forgiven for thinking that some – if not many – are actually being rewarded for failure.
There are many who feel that the current approach to executive pay, particularly in UK listed companies, is not fit for purpose and has resulted in a poor alignment of interests between executives, shareholders and the company.
Executive pay in the UK has more than trebled over the past 18 years, opening up a huge gap over average employee salaries and far outpacing stock market performance. The High Pay Centre estimates that the CEOs of Britain’s top 100 companies now make more than 180 times average earnings. So to some extent you can understand why public anger has risen over bumper pay deals.
Shareholders put their trust in the chief executive officer to deliver a healthy return on the investment they’ve made. It is therefore easy to see why they become impatient when the CEO is not only perceived to have failed in this mission, but then also appears to be rewarded for doing so.
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In 2015 BP shareholders voted against a 20% hike in CEO Bob Dudley’s pay package to $19.6 million when the oil company posted a huge loss. The decision was subsequently overturned and Dudley still got his rewards. As a result of these and other examples, experts have warned that the government might step in with new laws governing executive pay.
Being a CEO of a major corporation today is a tough and undeniably risky job. The average tenure of CEOs in this category is growing increasingly short and the business news regularly runs stories of fallen idols. Recent statistics reveal that one-third of all CEOs appointed to guide major corporations leave the post within three years. In the minds of the general public, CEOs have gone from the lists of most admired to those of least trusted. While much of this can be put down to an unrealistically singular obsession with CEOs’ pay packets, it’s equally true that many don’t pay enough attention to the public’s perception of their performance. This is especially true where a CEOs standing is tainted by an error of judgement. Talented leaders are, at the end of the day, only human – they can, and do make poor decisions. They can alienate as well as inspire key people, miss opportunities and seemingly ignore obvious trends and developments. So what lessons can everyday leaders who aspire to the top table learn from the experience of those already there – or recently departed?
I’ve worked for and with a number of new CEOs over the years and been a big fan of those who, from the outset, have genuinely engaged with staff at all levels in the business and invested the time to take on board and interpret a wide range of views, not to mention getting a handle on the real strengths and challenges in their ‘adopted’ organisation. I appreciate that the pace of modern business has largely made the ‘honeymoon period’ a thing of the past, but can’t help thinking that spending the requisite time to blend the true potential of a business with the vision, drive and leadership of a new CEO, not only promulgates a shared sense of ownership but also creates momentum to deliver sustainable shareholder return. For me, this trumps short-term thinking and the implementation of pre-conceived ideas every time.
It also provides a means to avoid what is often the bane of the new CEO – the gloopy inertia that drains the lifeblood from fledgling strategy. To my point above, in many of today’s major corporates, a CEO’s tenure is relatively short-lived and the pattern of churn here seems disturbingly predictable: arrival, energy, action, initial impact, inertia, loss of momentum, politics, rear-guard action, return to the status quo, departure – and round it goes. It seems to me that breaking through this ‘gloopiness’ is key to a new CEO’s long-term success. Whilst I’m sure most will recognise this, it is clearly not that easy otherwise more would accomplish it. It’s a complex mix of resistance, anxiety and uncertainty and I believe the only way through is by direct engagement with staff at all levels but particularly middle management, where much of the corporate strategy is translated into operational direction.
In a previous article we considered the tendency towards isolation that many CEOs experience as they become more senior in their careers. This must be avoided at all costs if the breakthrough is to be achieved. Emotional intelligence is crucial in all of this and is the key to getting the best out of people across the business. CEOs with a higher Emotional Quotient (EQ) are likely to foster a greater level of connectedness with their teams, establishing clear channels for communication (both ways), creating the right culture for improved performance and driving behaviours that will deliver the desired outcomes. CEO’s that focus on developing genuine leadership capabilities that inspire people to engage with their vision and engage with their staff are far more effective and are likely to prove more successful in the longer-term.
Without doubt, the role of a CEO is tough but I certainly believe that if new CEOs display behaviours akin to those outlined above, they will be significantly less likely to fall victim to the curse of inertia, or perhaps later down the line, find themselves in Philip Green’s position being slated for the collapse of their business empire.