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The age of uncertainty for CEOs

The chief executives of some of Europe’s top companies are on the way out. In recent weeks there has been a flurry of departures from the C-suite.

This week Shell announced Ben van Beurden will step down at the end of this year after nearly a decade at the helm. Elsewhere consumer goods company Reckitt Benckiser said recently Laxman Narasimhan is leaving, only to take up the top job at coffee giant Starbucks.

Philips, the Dutch health conglomerate, said its chief Frans van Houten will depart the company after a product recall cut its market value by more than half over the past year. Adidas, the German sports goods maker, said its boss Kasper Rørsted would depart next year before his contract runs out. Credit Suisse and Rolls-Royce have also announced the appointments of their new bosses.

It is a clearout that mirrors the CEO turnover after the 2008 financial crisis, according to Luke Meynell of executive search company Russell Reynolds Associates.

In the UK, Russell Reynolds data shows that so far this year 32 FTSE 350 CEOs have either left or are due to leave in 2022. This is up nearly 80 per cent already from last year when there was a big pandemic-related drop to 18. While the rate of departures across Europe for companies listed on the EuroNext index has fallen year on year, S&P 500 companies in the US have seen an increase of almost 15 per cent this year.

At least some of the departures are ones delayed by the turmoil brought on by Covid-19 pandemic. In times of upheaval, it is natural for corporate boards to seek stability by keeping chief executives in place. After getting through the worst of the coronavirus-related storm, the departures are now coming thick and fast. “A number of CEOs stayed on longer than they should have,” Meynell adds.

Such transitions offer boards the chance to review what qualities they need from a chief executive — and while the pandemic has eased, current turbulence means that the operational triumphs usually proffered on a CV and other traditional markers of managerial potential are now the bare minimum.

Chief executives have always had crises to deal with. The last 15 years alone have seen the global credit crunch, the sovereign debt crisis in Europe, Brexit and US-China trade tensions. But the sheer number of factors today that could potentially derail companies and their leaders is unusual — from market volatility, supply-chain crises, surging inflation, the war in Ukraine, talent shortages, digital transformations to culture wars within companies.

These come on top of longer-running structural changes facing global industries from technological advances to new investment trends spurred by a rising sustainability agenda.

In addition, boards are being drawn to CEOs with better “softer” skills — being a good communicator and having high emotional intelligence to manage a more vocal shareholder base as well as a more diverse workforce. With a cost of living crisis in full force, worker unrest is now also on the rise.

As one top boss told me: “Every CEO is spinning plates. Before there were 20, now there are 200 and you’re getting RSI [repetitive strain injury].” 

Such pressures mean boards must now prioritise agility in selecting leaders. After an era of managing for efficiency, CEOs must look to build resilience.

“The nature of what might come at you, as well as its frequency and magnitude, is what is new. Right now everyone is performing without a net. We are in a different era and boards know this,” says Michael Birshan, co-leader of the strategy & corporate finance practice at McKinsey — a firm that suffered its own management turmoil after its CEO was ousted last year after mishandling a string of crises.

However, resilience is not the same as caution. The most successful company leaders are the ones not afraid to make big calls and find opportunities in times of crisis. This could include overhauling acquisition strategies and capital allocation plans or finding new ways of retaining and hiring the best talent.

In short, any incoming CEO faces a daunting level of uncertainty in their in-tray. This is not necessarily a negative. As Nathan Furr and Susannah Harmon Furr write in their new book The Upside of Uncertainty: “We are all wired to fear the downsides of uncertainty, but we forget that change, creation, transformation, and innovation rarely show up without some measure of it.”

anjli.raval@ft.com

SOURCE: https://www.ft.com/content/ecbd3ce4-e92e-49c5-bfad-1c509f73fe87

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