Dubai: The management boards of companies are increasingly getting involved in the running of their organisations and they are particularly harsh on "imperial chief executive officers".
So if you are dismissive about the concerns of those around you, expect and plan for tougher times.
"Whereas imperial CEOs answered only to themselves, the power of today's CEO is not as absolute," warns a study on the changing corporate culture.
The change is being felt more acutely in Middle Eastern countries, which are attracting a large number of companies and seeing overseas expansion by their own businesses.
The study by consulting firm Booz Allen Hamilton showed the CEO turnover was 14.3 per cent globally in 2006. The average was about 10 per cent for the Middle East and Asia.
The Middle East is catching up fast with Europe and North America in CEO turnover as fast-growing economies bring new pressures in running businesses, says Rabih Abou Shakra, a principal with Booz Allen Hamilton.
"The region is growing. The number of multinational is expanding, and the challenges in terms of governing family-run businesses are becoming more accentuated," he says.
Both regular and forced CEO succession rates have stabilised since 2004 at 7.3 per cent and 4.7 per cent, respectively, significantly higher than the levels of the late 1990s and early 2000s, the survey found.
Annual turnover of CEOs across the globe rose by 59 per cent between 1995 and 2006. Performance-related turnover, cases in which CEOs were fired or pushed out, increased by 318 per cent during the same period. Only one in eight departing CEOs was forced from office in 1995 but in 2006 nearly one in three left involuntarily.
More critical
Boards of directors are becoming more critical and more closely involved in setting business strategies. These days they are far more likely to insist that CEOs deliver acceptable shareholder returns as well as demonstrate ethical conduct.
This is being seen as "the era of the inclusive CEO", a different species from the imperial CEOs, who thought they could rule their firm any way they wished. Boards not only take into account past poor performance of CEOs but also anticipated failures in removing them.
"Whereas boards in the past dismissed CEOs for proven underperformance, they are now removing chief executives more frequently because of concerns over poor current performance or if they expect future underperformance," the study reveals.
Large shareholders like hedge funds and private equity companies are taking a more active role in decisions that were once the sole purview of the CEO.
The study advises CEOs to embrace and reflect the concerns of board members, investors, and other constituencies like employees and government. "Those who ignore the new rules do so at their peril," it warned.
Imperial CEOs survived in the past because investors were not actively involved in the governance of publicly-traded firms. They limited themselves to selling off stock when they lost confidence in a CEO. But today's involved investors include not only members of family-controlled businesses, but also private equity buyout firms, raiders, and hedge funds that take a stronger hand in the actual running of the companies they have invested in.
By Shakir Husain
© Gulf News 2007
