The failure and subsequent departure of a CEO is a costly misadventure for any organization. The most immediate and devastating impact is often on the company’s market capitalization. In a matter of weeks, a floundering CEO can destroy a market valuation that has taken a decade to build. In addition, ousted CEOs rarely leave with empty pockets. A typical severance package provides the departing CEO of a Fortune 500 company with two to three times annual salary plus bonus, and extras can include compensation for life insurance, a $500,000 to $1 million annual payment for life, and office assistance for several years. If an executive recruiting firm is hired to find a replacement, its fees can run to more than $1 million. Shareholder class-action suits brought on by the plunging stock price are another hazard; in the past 10 years, U.S. companies have paid $20 billion to settle such cases. Last but not least, the organization’s initiatives go into limbo during a transition crisis at the top, and important competitive advantages may be lost during this time.

In recent years, several leaders at high-profile companies have flamed out early in their tenures: Among others, they include Richard Thoman at Xerox Corp., Durk Jager at Procter & Gamble Co., Richard McGinn at Lucent Technologies, Douglas Ivester at Coca-Cola Co. and Jill Barad at Mattel Inc. These puzzling examples raise questions: Why did such promising and previously successful individuals fail so quickly in the CEO role? And why is such failure happening today with relatively high frequency?

When a CEO fails after a brief tenure, the blame is often placed squarely on one person’s shoulders: the unsuccessful executive. It is human nature to point a finger at the CEO’s poor strategic choices, misguided actions or personality flaws. And up to a point, that is a fair judgment. However, in the cases of CEO failure that we studied, other major forces were at play. (See “About the Research.”) Once they are understood, companies can take steps to counter such forces and improve the chances that their leaders will not derail during their first couple of years on the job.

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References

1. D.A. Nadler, “Champions of Change: How CEOs and Their Companies Are Mastering the Skills of Radical Change” (San Francisco: Jossey-Bass, 1997).

2. D. Greising, “I’d Like To Buy the World a Coke: The Life and Leadership of Roberto Goizueta” (New York: John Wiley & Sons, 1998).

3. H. Levinson, “Psychological Man” (Cambridge, Massachusetts: Levinson Institute, 1976), 129.

4. M.F.R. Kets de Vries and D. Miller, “The Neurotic Organization: Diagnosing and Changing Counterproductive Styles of Management” (San Francisco: Jossey-Bass, 1984); and M. Maccoby, “Narcissistic Leaders: The Incredible Pros, the Inevitable Cons,” Harvard Business Review 78 (January–February 2000): 68–78.

5. S. Finkelstein, “Why Smart Executives Fail: And What You Can Learn From Their Mistakes” (New York: Penguin Group, 2003).

6. J.A. Conger, E.E. Lawler III and D. Finegold, “Corporate Boards: New Strategies for Adding Value at the Top” (San Francisco: Jossey-Bass, 2001).

7. R. Khurana, “Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs” (Princeton, New Jersey: Princeton University Press, 2002).

8. C. Lucier, E. Spiegel and R. Schuyt, “Why CEOs Fall: The Causes and Consequences of Turnover at the Top,” Strategy+Business 28 (third quarter 2002): 34–47.

9. B. McKay, N. Deogun and J. Lublin, “Ivester Had All the Skills of a CEO but One: Ear for Political Nuance,” Wall Street Journal, Dec. 17, 1999, sec. A, p. 1.

10. Greising, “I’d Like To Buy the World a Coke.”

11. A.J. Slywotzky and D.J. Morrison, “Pattern Thinking: A Strategic Shortcut,” Strategy & Leadership 28, no. 1 (2000): 12–18.

12. W. Pasmore and R. Torres, “Choosing the Best Next CEO: Succession Should Be a Process, Not a Horse Race,” Mercer Management Journal 16 (November 2003): 67–75.

13. Conger, “Corporate Boards.”

14. Khurana, “Searching for a Corporate Savior.”

15. M. Watkins, “The First 90 Days: Critical Success Strategies for New Leaders at All Levels” (Boston: Harvard Business School Press, 2003).

1 Comment On: When CEOs Step Up To Fail

  • Pat | June 15, 2010

    Supply chain politics has not been much of a topic in political debate, but given the recent Supreme Court ruling on corporation contributions, it moves to the head of the class in political debate over whether or not it is beneficial or adverse to democracy. Most intuitively presume the latter, but that premise is based upon the faith that democracy still exists in America. If truths be known, democracy may have faded long ago with the development of the military industrial complex however. The public may not have caught up yet with the realities that few privileged and advantaged persons want to reveal. With faith based initiatives, America may have begun the soft version of a welfare complex that together with the military, may drain any amount collected from taxes eventually. Still low on the debate scale, the forecast is reason enough to make the inquiry since like population demographics, funds do multiply, and can trample citizenship rights and privileges, perhaps even faster than population density.

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