AI: a dystopian future for academic freedom?
4 hours ago • by Jerry Davis in Audio articles
GenAI can deliver cost and productivity benefits for colleges and students, but there is a dark side....
Leadership
The CEO’s post-pandemic survival guide: ESG targets take center stage
Published 9 November 2021 in Leadership • 6 min read • 
Audio available
CEO turnover is rising after a COVID lull as boards place corporate culture and social responsibility at the heart of performance criteria, equal to shareholder value creation.
In response to the sharp economic shock resulting from the coronavirus, corporations and their chief executives went into crisis mode in the spring of 2020: they focused on conserving cash and improving liquidity to keep the lights on.
Boards prioritized stability and continuity and froze new CEO appointments to mitigate the risks of leadership transitions (the erosion of shareholder value) at such an uncertain time. Disney’s storied leader Bob Iger stepped down in late February 2020 but swiftly abandoned his retirement plans and returned to help Disney navigate the COVID turmoil.
But as companies look through the gloom to the end of the pandemic and begin making investments to drive future growth, the departure of top executives has been picking up pace. After dropping by 11% in the first half of 2020, CEO turnover returned to pre-pandemic levels in the last two quarters of the year, according to Heidrick & Struggles, the executive search firm. It continued to gather steam through 2021.
Having steered their organizations through an unprecedented crisis, many leaders saw the current phase of COVID as the right time to step aside. Some burned out. After a series of personal challenges last year, Mandy Ginsberg stepped down from dating app company Match Group, which owns Tinder and Hinge, “to take care of myself”.
This is a problem not just for CEOs but for shareholders, too. Research into 2,500 firms by Strategy&, a consultancy, found the uncertainty caused by an unexpected CEO resignation at a big corporation can wipe an average of $1.8 billion off its market value.
Animal spirits return to corporate boardrooms
But the uptick in CEO turnover also reflects a return to animal spirits – human emotion driving financial decision-making – in corporate boardrooms. If the role of the crisis-era CEO was to preserve and protect, the post-pandemic priority is to invest for growth. Tremendous advances in technology and shifts in consumer behavior may call for new leadership.
But strong macroeconomic headwinds, from supply chain disruptions to labor shortages and soaring costs, mean companies have not headed back to “normality”. Leaders must prepare for continuing volatility even as the global economy recovers. The post-pandemic CEO has to douse the fires and sow the seeds of long-term growth simultaneously.
Leaders with these and other critical abilities are proving hard to find, however, forcing boards to place a sharper focus on succession planning and internal leadership development. Companies aren’t just having difficulty attracting workers; they’re increasingly struggling to hire and hold their most senior executives. There’s a war for talent in the C-suite.
In the third quarter of this year, 348 CEOs of US-based companies stepped down, up 3.6% from the previous quarter, as companies poached each other’s leaders in a red-hot labor market, according to global outplacement firm Challenger, Gray & Christmas. Last month, British fashion company Burberry named Jonathan Akeroyd as its new CEO, poaching him from Italy’s Versace to succeed Marco Gobbetti.
The post-pandemic CEO has to douse the fires and sow the seeds of long-term growth simultaneously
From shareholder to stakeholder capitalism
At the same time, performance indicators are shifting from traditional areas such as financial return towards newer and broader stakeholder concerns about the environment, sustainability and diversity. COVID was an opportunity for boards to rethink CEO performance to better reflect pressure from investors, consumers, and regulators for progress on companies’ environmental, social or governance (ESG) targets.
This reflects the belief that lasting shareholder value creation stems from nurturing better relationships with all stakeholders. CEOs are now expected to promote inclusive workplaces and reduce inequalities, safeguard the wellbeing of employees, and decrease the organization’s impact on the environment.
At the Dutch nutrition company DSM, the remuneration of co-CEOs Geraldine Matchett and Dimitri de Vreeze is based on short and long-term targets that go beyond shareholder returns and include reducing greenhouse gas emissions.
The key to sustained high performance in the top job moving forward will be balancing these increasingly varied performance metrics. This forms part of a broader shift in corporate culture that is seeing CEOs speak out and take action on a range of societal issues such as climate change and global inequalities.
CEOs are being held accountable for not just professional but personal conduct, as higher ethical standards permeate the C-suite. There’s been a greater focus on the behavior of leaders in the wake of the #MeToo movement that has helped reshape corporate culture and social norms.
A PwC study found ethical lapses were a greater driver of CEO departures than even financial performance or board struggles. Last year, fast-food chain McDonald’s sacked its CEO Steve Easterbrook due to his consensual relationship with an employee.
Personal misconduct can have serious repercussions for companies, hitting investor confidence and isolating customers, employees and suppliers. CEOs and their boards must swiftly ascertain failings, investigate allegations of misconduct, and reassure stakeholders that positive change is taking place.
Geraldine Matchett 's interview
Farmers and food industry must work together to avoid disaster
A touchy-feely plan for success
Boards are placing increasing value on CEOs who can lead with empathy and compassion as concerns over mental health and burnout grow. Many organizations want to become more open, transparent and meritocratic, and create a sense of purpose and meaning and promote wellbeing in the workforce. This movement was gaining momentum before the pandemic hit.
Leaders must take better care of themselves too. The CEO role is a battle of attrition. The stakes are high, the demands are immense, the challenges manifold, and the travel unrelenting. The pandemic has only piled on more pressure. Self-care was once seen as a sign of weakness, but that is changing as research underscores the importance of diet, exercise, sleep and emotional regulation to sustained high performance.
Equally important is building a support system and spreading the load by delegating to the executive committee. Many CEOs say they find it’s lonely at the top, but it doesn’t have to be. The balance of power in many corporations is shifting away from the CEO to the board, which is expanding its scope beyond limited fiduciary duties to take a more active role in setting strategy.
This reflects increasing pressure from institutional shareholders to shift from pure profit maximization to environmental consciousness, gender and racial equality, and employee advocacy. And it means CEOs need to harness the full value of their board. This means ensuring directors deepen their commitment in terms of hours worked. CEOs should also clarify roles and responsibilities on the board, and create a culture of mutual trust and respect in the boardroom.
A push for boardroom diversity
A final focus for boards and CEOs is on diversity, especially gender representation. Among Russell 3000 companies, 5.7% of CEOs are women, and gender diversity has stalled or declined among the largest companies in the past year, according to Heidrick & Struggles. Last year, Citi’s Jane Fraser became the first woman to run a major US bank, underscoring the glacial pace of progress on gender equity.
Disclosure is also lacking, the search firm pointed out, with 96.2% of S&P 500 companies failing to disclose information on the ethnic background of their CEOs, even as scrutiny on companies increased in response to the worldwide #BlackLivesMatter protests against racial injustice last year. Among those companies that did disclose, 90% of the CEOs identified as being white.
Boards should be more transparent to make progress on diversity, which goes beyond gender and ethnicity and includes age, social background, stakeholder representation, and diversity of perspectives. Boards should also expand the networks used to recruit potential successors and the pool of people chosen for leadership development training.
Mentorship programs, executive coaching and business school courses are all important components of that. With a growing body of evidence linking boardroom diversity to shareholder value creation, we can expect more top executives to supercharge diversity efforts in the coming months.
Authors
Related
AI and the hidden climate cost of ‘dark data’
22 April 2024 • by José Parra-Moyano, Christine Legner, Konrad Schulte in Audio articles
Training and fine-tuning AI models requires troves of data, but storing and processing that data is financially and environmentally costly. Here are three ways to address the problem....
Audio available
How ChatGPT can unchain you from mundane office life
18 April 2024 • by Quentin Gallea in Audio articles
GenAI will allow human talent to focus on more creative, complex tasks, leading to greater job satisfaction and well-being....
- Audio available
AI-as-a-Service: be prepared for the next wave
15 April 2024 • by Annabelle Gawer in Audio articles
AI-as-a-Service will impact executives and their strategic decisions. It’s crucial to assess the benefits and repercussions it will bring....
- Audio available
Learn Brain Circuits
Join us for daily exercises focusing on issues from team building to developing an actionable sustainability plan to personal development. Go on - they only take five minutes.
Explore Leadership
What makes a great leader? Do you need charisma? How do you inspire your team? Our experts offer actionable insights through first-person narratives, behind-the-scenes interviews and The Help Desk.
Join Membership
Log in here to join in the conversation with the I by IMD community. Your subscription grants you access to the quarterly magazine plus daily articles, videos, podcasts and learning exercises.