There remains substantial concern that senior executives and CEOs have been able to cocoon themselves with fantastic combinations of isolation, wealth, and numerous other protections that divorce them from reality and undermine their ability to understand and focus on their fiduciary duties as managers. The resulting environment of moral hazard has enabled them to pursue courses of action that have direct and often immediate consequences on everyone from shareholders to customers to employees; if these are positive they magnify the benefits that accrue to the managers, but if negative, they merely moderate those benefits – they don’t expose the executives to the financial and other losses faced by those who depend upon – but don’t make – the decisions that cause them.
Certainly, there have been a few successful prosecutions of some of the more egregious transgressors. But the integrity and professionalism of the field of management cannot be policed only by the negative attentions of ambitious prosecutors who otherwise have no real connections with or interests in the organizations whose executives they investigate and bring to trial. It must come from sources whose interests are more direct, and more appropriately positioned in the chain of responsibility for those organizations.
And, there is growing evidence that this is beginning to occur. An article in today’s Wall Street Journal reports that CEOs are more frequently being removed for cause by their own boards. This is especially heartening because so many boards are chaired by the very CEOs they are expected to supervise, and are composed of CEOs from other companies who have an interest in perpetuating the system of ineffective, submissive boards that defer in peculiar unanimity to these putative servants. Yet, due largely to shareholder activism (led, in the main, by large institutional shareholders such as CALPERS, with the interest and ability to push reform), boards are beginning to hold CEOs directly responsible for share price performance.
Thus, it is gradually becoming the case that when others suffer from the poor performance of a CEO, the CEO can at least expect to be held accountable to the extent of losing his or her job (albeit, still with hefty compensation). Indeed, the article reports that fully half of the Fortune 1000 boards have replaced their CEOs for cause since 2000. CEO longevity, historically about 10 years, seems to have declined dramatically to a period of around four years.
What are the consequences of this shift? Are they really as positive as they may seem? What effect might they have on CEO performance and the promotion of unaffected, professional management of our organizations? Will such trends improve managerial results, or cast cold water on innovative and bold managerial behavior, causing organizations to miss important opportunities, or even fail to take vital steps? We will examine questions like these over the next several days. We hope you will join us.
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