CEO transition

Just read this article in Forbes about Amazon's Jeff Bezos' number one leadership secret. I've followed him for years and enjoy reading about how Amazon has grown from a bookseller to an everything store online.  I had already been thinking about about the importance of employees and customers for new CEOs when I read that Bezos' number one leadership secret is that the customer is always right. There is this example described in the article that when Bezos calls meetings, he leaves an empty seat at the conference table for what he calls the customer's seat.  A potent reminder to bring the customer's point of view to the table. The article hints at the fact that Bezos has built his hugely successful business bent on "coddling his 164 million customers, not his 56,000 employees."  This has me wondering that in this age of the Internet and social media galore, if customers are now more important than employees, maybe because of sheer size? The pendulum seems to be swinging again anyway. It used to be that all business activities were primarily all about customers, then all about employees and now... it's all about equal parts' employees and customers but with customers gaining the upper hand again.  The Internet has created a sense of urgency about how satisfied your customers are.  Probably because they spread word of mouth more quickly and seem to have more power than employees. They can advocate or criticize your business approach or customer service online for all to see. They have more power because they have so many choices from which to buy from.  The answer for new CEOs, however, appears to be focusing on employees with a healthy dose of understanding what your customers want and quickly scaling to reach them online to confirm what employees are telling you. Something to think about over the next few weeks. Whose more important -- employees or customers for new CEOs and CEOs who've been in office for some time?

Yesterday I was asked to talk about what I do at Weber Shandwick to our Crisis and Issues group in New York. It was an end of the week get together to take the edge off of all the long hours. I talked about reputational issues and answered several questions. It was a nice opportunity for me to reflect too. I was asked where all the celebrity CEOs had gone which made me recall my first book on CEO reputation. The book was released at the height of the dot com boom when 22 year old CEOs were the norm and celebrity CEOs were plentiful.  In my book, I tried to make the point that it was not CEO celebrity that mattered but CEO credibility. As I was answering this question, I realized that I hit on some of the right notes as to why CEO celebrity was not the same today but missed a few. In fact, I mentioned that being CEO today was not  an easy job whatsoever. CEOs are much more embattled.  Here are some of the reasons I talked about yesterday but others as well taken from an Economist article I was saving to post about.

• CEO tenure is shorter than it used to be (on average 6.6 years, according to Booz's research).  They usually come into office with great fanfare. They get approximately two years of grace when they start out (more like 18 months), 2 years to provide evidence that their strategy is working and two years to get pushed out. After six years like this, it's best to be a CEO nobody.
• CEOs don't have all the power anymore. Most CEOs now have separate chairmans that are looking over their shoulders and asking a lot of questions.  Booz found that in 2002 48% of incoming CEOs were also chairmen.  In 2009, that number dropped to 12%.  Hard to be a celebrity when there is power sharing going on.
• CEO compensation is always a headline and increasingly links the CEO title to perceptions of greed. CEO compensation is actually declining.
• Shareholders and stakeholders are not sitting idle. They are much more aggressive.  Some hedge funds are actively browbeating CEO and corporate decisions and in executives' faces. The ridicule can get strenuous.
• Boards are more active too. They don't want their reputations shamed either by poor CEO decisions or poor behavior. And according to Korn Ferry, new board members are more likely to be deep in international experience and have worked abroad. They are not necessarily golfing buddies like board members of yore. Angry birds maybe, but not necessarily tee time!

With all these barriers in place to curb the power of CEOs, celebrity CEOs can hardly flourish. Instead, we are looking at a new world of convening CEOs who communicate internally to employees, communicate online or through video to netizens, travel to speak to customers and influencers at forums they convene themselves (IBM's Smarter Planet  method), partner with third parties and government to problem solve on today's economic woes and so forth.

RHR International was mentioned today in an article in the WSJ about the recent revolving door for CEOs. Not that this is new. CEOs have been coming and going for some time now. But what was new was that among the 83 CEOs of publicly held companies surveyed, the board seemed to be a greater source of tension than it used to be. Nearly three quarters wish they were included more in board discussions of succession planning.  And as one would expect, the top two threats to their tenure, according to CEOs, were the current economy (39%) and rapid industry change (22%).  However, a third top threat to CEO tenure was strategy disagreements with the board (17%).  As a watcher of  CEO trends, I find it noteworthy that CEOs mentioned disagreements with boards and desire greater collaboration over transitioning.  The disagreements over strategy (spin offs, shedding assets, etc) does seem to be a rising cause for CEO exits these days. Something has changed.  I wonder if the new tension that is developing is because boards are more active now because of the criticism that they were no more than a rubber stamp on CEO activities or if the strategic choices facing boards today are infinitely more complex and disruptive. When no one knows the true answer, there is room for disagreement. CEOs and boards seem to be caught in this new tango. Another finding which I liked seeing because it provides some hard numbers about something I have observed was that half of CEOs feel isolated and lonely. For this reason, CEOs should reach out to other CEOs in different industries, find mentors or retired CEOs to talk to. It can be debilitating so finding an ear to listen and advise is highly recommended.

  Because I am off from work for the holiday, I have a little time to catch up on things I meant to read in the months before. I was particularly interested in some research on CEO transitions and its impact on the value of the enterprise conducted by FTI.  A few facts jumped out at me from their study among the financial community. They found that one-third (32%) of investor decisions are impacted by the reputation of the CEO. Moreover, the reputation of the CEO was more important to investors than the reputation of the company's products and services. The research covers the value at risk depending on what type of CEO transition occurred. The greatest risk to the enterprise is when a CEO is forced to resign. Because of my work on CEO tenures and how to build CEO reputation, the findings confirm my own research over the years that CEOs need to show success by that 12 month marker. FIT found that investors give new CEOs about six months to assess the challenges and opportunities facing the company, setting a vision and strategy.  They give new CEOs more leeway to improve market performance and valuation -- about 12 months. After the first year, all engines need to be firing. Another particularly interesting finding was what investors look at in their first 100 days to further establish the CEOs credibility in their eyes....here is what they said was of "significant importance." Despite the ranking for "charisma," it is still interesting that it is still estimated to be of high importance and only 16% said it was of limited importance.  FTI concludes that investors take a multi-dimensional view of new CEOs. They expect to see it all.

During First 100 Days Of A New CEO	“Significant importance”
Grasp of the company’s challenges and opportunities	96%
Knowledge of/experience with industry dynamics	92
Vision	88
Operational focus	88
A strategic plan	88
Leadership style	76
Charisma/personality	54

 FTI Consulting  

   CEO training can be fraught with complications and wouldn't it be a shame if you overlooked someone who could make a difference. Today I read about the new CEO of IBM, Virginia "Ginni" Rometty. Apparently CEO Sam Palmisano wanted to make sure that she had a worthy mentor in the year or so leading up to her possible naming as CEO. He asked the CEO of Frontier Communications, Maggie Wilderotter, to mentor her. They met several times over lunch.  According to the Wall Street Journal today, Ms. Wilderotter recommended that the possible CEO elect work more closely with Wall Street, the big banks and leading IBM customers she did not know as well as others. Apparently Wilderotter told Ms. Rometty that "Wall Street is a big part of the job when you are CEO." A CEO buddy system is a good idea for building a reputation to get the job. Now she will need help with her CEO reputation-building for her first 100 days. I have to admit, the ring of "her first 100 days" sounds good to me.

Totally agree. Just read an article about teaching reputation management in business schools. I gather it is not happening. Actually, this topic has been circulating for as many years as I have been in the field of reputation management. How is it possible that nothing has changed?  An analysis of highly ranked MBA programs by the Public Relations Society of America (PRSA) found that only 16% offer a single course in crisis management, strategic communications, public relations, or whatever on a company's most competitive and valuable organizational asset -- its reputation. With all the reputation failures we have seen over the past decade or more -- starting with Enron, it is hard to believe that business schools are still treating communications as an elective, if at all. [Weber Shandwick's "stumble rate" shows that nearly one out of every two companies lost reputation in their industry last year.  Isn't that enough reason to teach MBA students how to communciate to avoid such reputation disasters?] The article written by Anthony D'Angelo rightfully says: "One can't blame organizational leaders for not understanding that the way they operate the business is inseparable from the way they communicate about the business, inside and outside the organization. They're not educated sufficiently to know these are inextricably linked leadership requirements: You can't have effective leadership without an effective communications strategy. The latter is based on authenticity and transparency because nothing else works." Communications is a requirement of good governance and smart leadership. New CEOs understand very well today the importance of communicating internally when they confront their first 100 days.  Nearly all those I have worked with are eager to communicate with employees and desperate to do it well. There is always a perception that the prior leadership did not do enough to communciate the strategy or to movitate and rally employees. But when does" communications amnesia" set in if they are all so eager on Day One?  It is too late to get the communciations bug when crisis is on the doorstep. Reputation or communications management is sorely needed in business schools today. What's keeping it away? Is it the perception that communications is all about excuses and spin? Responsible communications needs to be taught.

The second survey of Board Directors was just issued. The survey is conducted by Eisner Amper, audit, tax and business advisory professionals. They used their database and NACD's Directorship magazine's subscriber list of corporate directors. The survey reports on the opinions of 142 directors representing publicly and privately-held companies.  One of the questions they asked was which risks are most important to their boards, that is, besides financial risk (which probably begs a 100% answer!).  The chart is below. At the top of the list is reputational risk -- 69% said this is most important today. Reputational risk surpasses regulatory compliance risk (61%), CEO succession (55%) and IT risk (51%). I would posit that if this survey was done in the past few weeks, IT risk might have jumped up higher as a factor of major concern. The hacking and hobbling of computer networks at Boeing, Sony and the White House gmail accounts have had to certainly affect risk management concerns at board level.  With regard to security risks, Eisner Amper wisely says: "The tools of today's business heavily revolve around information technology, the Internet, the speed and degree of data transmission, and the pervasiveness of social media." And everything that affects business affects reputation.

Aside from financial risk, which are most important to your boards?	Board Directors
Reputational risk	69%
Regulatory compliance risk	61%
CEO succession planning	55%
IT risk	51%
Product risk	34%
Privacy and data security	33%
Risk due to fraud	21%
Outsourcing risk	14%
Tax strategies	14%

Another question they asked which I like was where board directors go to for new information. In the 2011 survey, the leading sources were company management, publications, Internet, accounting/advisory firms and conferences (at 33%).  I liked seeing the importance of conferences among the other sources because I firmly believe that getting out of the office and listening to other points of views provide opportunities for thinking beyond the same old ways about the same old problems.  I wish I did more of this myself.  We all need to close the door on our silos. For board members, this is a good sources considering how the problems they face have to be on high boil these days.

Primary Sources for New Information	Board Directors
Company management	73%
Publications	54%
Internet	46%
Accounting and advisory firms	36%
Conferences	33%
Personal network	33%
Associations	229%
Law firms	17%
Consulting firms	11%

At the end of their executive summary, Eiser Amper concludes:

"Protect. Protect. Protect. Reputational risk needs constant monitoring and analysis of the broader issues...Brand, company and personal reputation can change overnight. The speed of today's business was unimagineable in years past, but its impact is real and protection is the name of the game."

  Last night I was asked how long I had been blogging. I threw out a number without thinking about it.  However, since I was not sure, I went online to determine how long it might actually be and I was curious about whether I had hit an anniversary of sorts. Should I be celebrating my 5th or 8th or 10th year anniversary of blogging about reputation? My first web site was CEOgo.com.   I defined it as "The premier site on chief executive officers, leadership and management trends." Actually, there was no other comparable site so I could have easily said it was "The site on chief executive officers, leadership and management trends."  CEOgo is no longer live since it was closed down after I left my previous position and I joined Weber Shandwick, starting anew with reputationXchange.  I started CEOgo in February 2000 (according to when it was registered) which answers my question on how long I've been blogging -- 11+ years. Who would have thought I had so much to say on CEOs, CEO reputation, corporate reputation, CEO transitions, leadership and all things reputation-related. CEOgo was the site to go to on CEO turnover, whether CEOs were insiders or outsiders, average tenure, reasons for departure, reputation-building, etc.  It certainly chronicled my thought leadership in this area and eventually rolled itself all up into my book, CEO Capital. And although much has changed (the more common division of the Chairman and CEO role for one), much has stayed the same. It is among the hardest jobs there is, next to being President of the U.S. I have anniversaries on my mind today because I am looking at my five-year anniversary at Weber Shandwick. Although I like to think that annniversaries come and go and corporate life has its good-and-plenty ups and downs, I have to say that my past half decade at Weber Shandwick has been fulfulling, productive and full of pleasurable surprises. The leadership and collegiality are truly the real deal and I am thankful for what I have been encouraged to accomplish. And I have also been lucky enough to work with Liz and Jen who make all the difference to my ability to face those very early mornings that are my habit. It is important not to let important milestones just pass -- whether 11 years of blogging about reputation or 5 years at Weber Shandwick. I consider myself lucky.

  I must be on a "leadership" kick as this week ends. Yesterday I posted about leadership's role in crisis preparedness. Today I am going to post on the effects of crisis on a leader. At a dinner the other night, my colleague mentioned the impact of the killing of Osama bin Laden on President Obama. We agreed that he had to be a changed man. In yesterday's reading, Daniel Henninger wrote the following in the same vein:

A candidate is not a president. In the fall of 2008, after Mr. Obama won, our offices were visited by then-Homeland Security Secretary Michael Chertoff, a former anti-mob prosecutor. Asked about the Obama criticisms of the war on terror, Mr. Chertoff replied that it was impossible to overstate the sobering effect of learning the true magnitude of the threat and bearing responsibility for thwarting it. On another occasion, former Attorney General Michael Mukasey, who as a federal judge presided over terrorist trials in New York, was asked the difference between his understanding of terrorism then and as attorney general. "About the difference," he replied "between what you thought you knew in the sixth grade and a post-doctoral education."

Without a doubt, the decision to launch the Seals attack on bin Laden's hideout and the risks that entailed changed the man. Whenever people go through their CEO transition to finally land their company's highest office, they realize the enormity of the position. Nothing ever looks the same. The buck really does stop at that corner door. As you've undoubtedly heard before from Shakespeare,

"Heavy hangs the head that wears the crown."

 Each year Weber Shandwick measures the rate at which companies lose their #1 most admired position in their respective industries on the Fortune World’s Most Admired Companies survey. We call this the “stumble rate.” Between 2010 and 2011, 43% of the world’s largest companies (22 in absolute) experienced a stumble, down slightly from last year’s 49%.*  While this marginal improvement is a positive sign for the stabilization of reputation, the fact that 4-in-10 companies lost their enviable industry position during the past year highlights just how difficult a good name is to keep.  A few things distinguish reputation stumblers from non-stumblers:

• Reputation stumblers had more CEO transitions or changes. Those companies that lost reputational status had more CEO transitions and retirement announcements during 2010. This is perhaps not surprising since change at the top can signal that a company is in turmoil or that a new strategic direction has been set.  On the other hand, rankings may be very sensitive to the uncertainty of any CEO transition – voluntary or not.
• Reputation stumblers underperformed non-stumblers in terms of financial performance. Stumblers’ average share price rose 9.5% year over year compared to the 21.2% for non-stumblers . Although it might seem confusing that stumblers’ share price rose, it is important to recognize that stumblers are most admired companies.
• Reputation stumblers did not lose admiration for any one particular reason. Stumblers lost reputational equity for a variety of reasons such as governmental investigations, bad loans, poor returns on mergers/acquisitions or issues related to the housing market.  No one reason appeared to stand out.

Reputation Drivers Most Affected Weber Shandwick dug deeper into Fortune’s nine reputation drivers to explore possible reasons for stumblers’ loss of reputational esteem.  Of the 22 stumblers, we found that:

• The most pervasive loss of reputational equity between 2010 and 2011 was in the area of “wise use of corporate assets,” perhaps a sign of the challenging times. This attribute was the most frequently dinged by survey respondents – industry peers, financial analysts and board members. 
• Other factors that appeared to affect the overall stumble rate were perceptions on  “people management,” “management quality” and “long-term investment value.” The rankings of 15 stumbling companies on each of these factors dropped since 2010, possibly reflecting a lack of confidence in a company’s overall long-term strategic direction.
• The least damaged driver during 2010 for stumblers was “financial soundness.”  Only 8 of the 22 stumblers lost credit on this attribute, perhaps because of an improving economy and/or raters cut their peers some slack, recognizing how hard it’s been the past few years to grow a business.  

  *Fortune reports 22 companies out of 57 industries experienced “tumult” (p111, March 21, 2011 issue). A reader would interpret that as a 39% stumble (22/57). Since Weber Shandwick is tracking the rate over time, our base of industries needs to include only those that are reported year over year. For example, the Packaging/Containers industry was not reported in 2010 so Weber Shandwick excluded it from the total 57 industries reported in 2011. In total, six industries were excluded for the 2011 stumble rate to net a base of 51 industries (22/51=43%).