Follow-up is quite the topic these days, and not just because the indispensable HBO series with that name is nearing its end. While the Murdoch – oops, I mean Roy – brothers and sisters invent it for dad’s media throne, in the real world Zara heir Marta Ortega took over the helm from Inditex, the Spanish fashion conglomerate. Meanwhile, peculiar technology titanium Jack Dorsey acts as Twitter CEO to focus on leading Square, his fintech firm, as Parag Agrawal, chief technology officer, takes his place at the social media giant.
Presumably, the new arrangements will not only give Dorsey more time to think about cryptocurrency, but also more headroom for that afternoon. yoga class which the activist investor Paul Singer must have hated. Sanger’s Elliott Management insisted on Dorsey’s removal on the grounds that no one should lead two public companies. It could also be a sign of a bigger exit from the C-suite, as conditions in both the markets and the real economy become more difficult, and leadership of large public companies becomes more difficult.
One could argue that this has been the case for the past two years, of course. During the first part of 2020, when the pandemic began, boards wanted to keep CEOs in place due to Covid-19. But the number of transition announcements has increased significantly since the second half of 2020, according to a study of the Russell 3000 and the S&P 500 co-authored by the Conference Council earlier this year. Corporate leaders have called for increased levels of “burnout after a turbulent and exhausting year of crisis management”, as the report’s authors put it.
This trend can be reflected in the fact that the gap in successor rates between weaker and better-performing companies, which is usually quite large, has narrowed significantly. The increasing numbers of departures appear to be just as much about top executives stepping away from their jobs as being pushed out of it.
It can get worse. Even before the pandemic, the depth and breadth of digital transformation created one of the most dynamic but also most challenging business environments in memory. Add to that new concerns about employee health and well-being, the reliability of supply chains, changing consumer behavior, labor activism, inflation and the Federal Reserve’s emerging shift from easy monetary policy, and you have the makings of an extraordinarily demanding year ahead.
What’s more, an upcoming wave of mergers and acquisitions is likely to create its own layoffs in the C-suite. The number of public companies has been shrinking for almost two decades. According to OECD data, there are now 30,000 fewer enterprises than in 2005. A new Schroder report shows that of the 977 companies in the U.S. that have delisted since 2010, 84 percent did so because they were bought by other companies.
As Schroder’s head of research and analysis, Duncan Lamont notes: “A boom in company acquisitions has been accelerating for a number of years. But the party may have just begun. The conditions are perfect for a further boom in M&A activities: many companies are flushed with cash, private equity ‘dry powder’ is close to a record high (money raised but not yet invested) and borrowing costs are historically low. ”
All of this can provide a bit of a kick for stocks – M&A waves, like stock buybacks, usually do. However, it will also lead to consolidation, which will inevitably lead to new successors.
The CEOs who remain standing will have their hands full. The Fed tailwinds that have held stock prices high for so long are now changing, with Jay Powell, the central bank’s chairman, indicating that both reductions and rate hikes may come sooner than expected. This is a good thing because it will remove foam from the markets. But it will not be good for profits. The inflation we see in both goods and labor will not either.
Meanwhile, as markets move, corporate leaders are likely to come under pressure from all sides. In the first place, activists like Elliott will no doubt demand more belt tightening. But there will also be pressure from unions, who are enjoying a revival, from governments looking for more and better environmental, social and managerial commitments and from everyone else with an established interest in “stakeholder” rather than “shareholder” – capitalism.
Judging success on something other than stock price is obviously a good idea. But there is still no clear agreement on what the new measures of corporate performance should be – although governments and regulators on both sides of the Atlantic are trying to come up with ideas. This is difficult for business leaders.
But while benchmarks can be vague, CEOs are already being evaluated by the market, not just on merit targets, but on how they articulate values, address inequality, manage talent, organize supply chains, influence the environment and engage with employees, customers and local communities. .
Indeed, the authors of the Conference Board study speculated that this may be another reason for the sharp reduction in the gap between the successor rates of CEOs of better and poorer performing companies. As the study noted, it is possible that “factors outside of stock market performance are beginning to weigh more prominently” in a board’s decision to retain a CEO.
The fictional Roys are not the only ones dealing with scandals, stock prices and succession. Through choice or violence, more managers may soon have more time to perfect themselves down dog.