CEOs are losing jobs faster

UP FRONT

Record 1,400 chiefs likely to leave in '06

September 28, 2006|By Bloomberg News

NEW YORK -- Chief executive officers are falling faster than ever this year. In just the first 12 days of September, leaders at Bristol-Myers Squibb Co., Ford Motor Co. and Viacom Inc. were deposed - fueling the breakneck pace at which one CEO departs every six hours.

U.S. companies are on track to fire or lose a record 1,400 chiefs in 2006, up from 1,322 last year and 663 in 2004, says executive recruiting firm Challenger, Gray & Christmas Inc. in Chicago.

From Sun Microsystems Inc. and Pfizer Inc. to Kraft Foods Inc. and RadioShack Corp., most types of firms have felt the rash of CEO departures.

Chief executives are being pushed out the door as directors abandon their laissez faire approach to governance after the prosecutions at Enron Corp., WorldCom Inc. and other companies.

About 96 percent of companies in the Standard & Poor's 500 Index now have independent leaders or presiding directors, up from 36 percent in 2003, says a survey by Spencer Stuart Inc., an executive search firm in Chicago.

"Boards are under a lot more pressure and they're being hyper vigilant," says Donald C. Hambrick, a management professor at Pennsylvania State University's Smeal College of Business. "They are cleansing."

For a price. Over the past three years, severance packages for departing CEOs averaged about $16 million, according to the Corporate Library, a governance watchdog group in Portland, Maine.

At Bristol-Myers, a board with nine independent directors pushed out CEO Peter R. Dolan for botching a deal to keep a generic version of the drugmaker's top-selling heart pill, Plavix, off the market. Dolan, 50, served for five years, an eternity compared with other firings in 2006.

Sumner M. Redstone, chairman of Viacom, booted CEO Thomas E. Freston after just eight months. Redstone told investors that Freston's failure to translate the MTV network's success to the Internet helped drive the stock down 7.6 percent during his tenure.

Philip H. Knight, chairman of Nike Inc., used the same trap-door treatment on William D. Perez. Knight hired Perez, 59, to replace him as CEO and canned him a year later, in January.

Leaders don't get the deference once reserved for the likes of former General Electric Co. CEO Jack Welch, says John A. Challenger, head of Challenger, Gray & Christmas.

"The days where you learn from your mistakes, those days are over," Challenger says. "The results have to be immediate, strong and consistent."

William Clay Ford Jr. failed to get those results after taking over the No. 2 U.S. automaker in 2001. As global competitors such as Toyota Motor Corp. reduced Ford's market share every year since 1995, its chairman and chief executive set out to cut 30,000 jobs over the next six years.

With that plan sputtering, Ford, 49, handed the CEO job to Alan R. Mulally, a former executive vice president at Boeing Co., on Sept. 5. Two weeks later, the automaker said it would offer all hourly workers buyouts and finish the previously announced firings four years ahead of schedule.

Mulally, 61, more than doubled operating profit in two years by speeding production and slashing employment by more than half in Boeing's commercial airplane division.

At Ford, the first outsider to run the company in 60 years doesn't have much time to show he's capable of a repeat performance.

"The golden boys get more opportunity and more time, but he still only has about two or three years," says Allan R. Cohen, a professor who studies chief executives at Babson College in Wellesley, Mass.

The year's biggest scandal - the backdating of stock options - has added to the executive upheaval.

At least three chiefs have quit or been fired because of option issues. They include Jacob "Kobi" Alexander, the ex-CEO of Comverse Technology Inc. who was arrested yesterday in Namibia where he fled after being charged by the U.S. Justice Department with conspiracy to commit fraud.

More executives likely will fall after the disclosures by 130 companies of federal or internal investigations into allegations that option grants were backdated to increase their value.

As Nortel Networks Corp. discovered, replacing a CEO may please shareholders without boosting a company's performance.

After cleaning up an accounting scandal, Nortel named former Motorola Inc. President Mike S. Zafirovski as its new CEO last October.

The shares rose 5.4 percent on the day of the announcement, and the telecommunications equipment maker said the company was on solid footing.

Seven months later, Zafirovski, 52, said it may take five years to turn around the firm. In June, he cut 1,100 jobs. The stock has plunged 25 percent in 2006.

Even leaders who turn around companies are vulnerable. Hewlett-Packard Co. chief executive Mark Hurd took over the computer maker from CEO and Chairwoman Carleton S. "Carly" Fiorina last year. Hurd, 49, has taken market share from rival Dell Inc. and boosted the stock price 80 percent from the start of his tenure in April 2005.

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