A simple case of the war leader being the wrong man for peacetime? The decision by General Motors to oust chief executive Fritz Henderson just five months after the carmaker emerged from government-supervised bankruptcy may smack of ingratitude. After just eight months in the driving seat, Mr Henderson has been described as a victim of a “killer board”. He helped bring the carmaker back from the brink, but was judged the wrong man to sell GM stock back to the public in a forthcoming initial public offering.
His exit is a harbinger of a rapid reversal in the decline in CEO turnover rates seen during the financial crisis, when western companies nervously stuck with the leaders they knew. In the UK, where CEO turnover fell a remarkable 50 per cent year on year in the first half of 2009, according to Manchester Square Partners, boardroom bloodletting could be particularly sharp once conditions normalise. This is no bad thing. It is fashionable to lament the decline in chief executive longevity as evidence of short-termism, a mirror image of the ever briefer period that the average institutional investor holds a given stock. But the argument that leadership continuity invariably improves corporate performance should be treated with suspicion. Decreasing longevity is the fruit of a decade of corporate governance reforms aimed at boosting C-suite accountability.
If a board is going to muster the energy to act – and most do anything to avoid confrontation – it stands a better chance of doing so before the chief executive can forge ties that co-opt directors to his cause. Chief executives become entrenched surprisingly fast. Sure. there is little to recommend a gladiatorial thumbs up or down style evaluation of the boss after 100 days – that would encourage snap judgments on the basis of instinct and first impressions alone. But eight months is plenty of time for a considered verdict. More companies need killer boards like GM’s.
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