The Fall Guys

Here's an interesting article By Rushabh

Are today's CEOs tomorrow's Fall Guys?
by Rushabh Mehta - Wednesday, 28 July 2010, 04:41 PM

Headlines across the world are rejoicing the sacking of Tony Hayward, CEO of BP. He has been tried and convicted by the mass jury comprising of media and public at large.

In February, Toyota’s President, Mr. Akio Toyoda, had to fly all the way to America to apologise in front of a congressional committee for Toyota growing too quickly and overlooking safety issues, specifically the issue of sudden acceleration in some of its vehicles. (Of the 89 deaths attributed to sudden acceleration, many now seem to be from human error).

Nokia’s CEO, Olli-Pekka Kallasvuo, will be replaced very shortly because according to the company’s investors, Nokia as a brand has lost its meaning.

These are just three of the many examples of leaders being implicated for problems caused by the companies they lead. While CEOs and top managers do need to shoulder responsibility for any wrongs or nuisances created by their respective companies, it seems that in today’s trigger-happy world, CEOs are increasingly being attributed all the blame. Agreed, Tony Hayward did make a lot of gaffes on record, but so did George Bush. While the “Bushisms” were laughed off on late-night comedy shows, Hayward’s verbal blunders sounded his death knell.

It is common knowledge how expensive it is to replace an employee in any company today. The direct and indirect costs of finding, recruiting, training and (sometimes) relocating make “employee attrition” a feared phrase around the world. These costs multiply as we go up the employee hierarchy. Replacing CEOs costs tens, and sometimes hundreds, of millions of dollars to the companies and their shareholders. Yet, over 30% of the CEO successions in USA in 2008 were forced replacements (Booz Allen). Tony Hayward’s tenure as CEO at BP will be 3 years and 5 months in October 2010, and he will be most likely “exiled” to Siberia as a non-executive board member of TNK-BP with a severance and pension package worth millions of pounds. Bob Dudley, who had to flee from Russia as former head of TNK-BP in 2008 after disagreements with local shareholders, will now become CEO of BP.

While the media and the public demanded Hayward’s head on a platter, has this reshuffling by BP served any real purpose except help the company save some face? The real culprits – the politicians, the legislators, the companies that supplied and ran the rigs, the companies that built the safety devices, the engineers and supervisors meant to look after the safety issues, etc. are all getting away scot-free. The only good thing BP did was to wait till the oil leak was plugged before announcing Hayward’s replacement as CEO. They did not want the incoming CEO, Dudley, to end up holding an uncontrollably flaming torch that Tony Hayward supposedly lit. They probably learnt that lesson from last year’s replacement of the world’s topmost CEO – the American President. Obama is getting all the flak for the fires Bush lit before his tenure got over.

Since childhood, we have been taught to forgive and forget. We have been taught to give people a second chance. We have been taught that someone who apologises is a bigger person than someone who refuses to accept the apology. Why then do we see this archaic “off-with-his-head” attitude every time a CEO’s head pokes up from a crowd? The end result is that a CEO’s tenure gets shorter, his job gets more stressful, more corners are cut to appease stakeholders, and unbelievable amounts of money is spent in recycling the CEO position every few years. This adversely affects a CEO’s performance, and directly affects the stakeholders. If a CEO is bold enough to put his hand up and say that he is responsible, and needs time to correct the problem, why not give him a second chance? Citibank’s Vikram Pandit did that, got a second chance, and delivered on his promises.

And what happens to these laid-off CEOs? Some lie low, going into early retirement, to enjoy their fabulous severance packages. Many come out with their autobiographies, which are lapped up by the same people who criticised them. And some like Carly Fiorina run for the US Senate. At least people today forget easily, if not forgive.

- Rushabh