Presumably, the new arrangements will not only give Dorsey more time to think about cryptocurrency, but also more free space for afternoon yoga classes that activist investor Paul Singer must have hated. Singer’s Elliott management had pushed for Dorsey’s removal on the grounds that no one should run two public companies. It could also be a signal of a larger top management exodus, as conditions in the markets and the real economy harden and leadership of large state-owned companies becomes more difficult.
You could say that has been the case for two years, of course. During the first part of 2020, when the pandemic started, boards wanted to keep CEOs in place because of Covid-19. But the number of transition announcements has increased significantly from the second half of 2020, according to a Russell 3000 and S&P 500 study co-authored by the Conference Board earlier this year. Business leaders spoke of increased levels of “burnout after a tumultuous and grueling year of crisis management,” as the report’s authors put it.
This trend may be reflected in the fact that the gap in inheritance rates between the poorest and the best performing firms, which is usually quite large, has narrowed considerably. The growing number of departures appears to be as much a result of executives faltering from their jobs rather than being kicked out.
It can get worse. Even before the pandemic, the depth and breadth of digital transformation created one of the most dynamic but also the most difficult business environments to remember. Add to this new concerns about the health and well-being of employees, the reliability of supply chains, changing consumer behavior, union activism, inflation and the emerging change of the Federal Reserve by to accommodative monetary policy, and you have the makings of an exceptionally demanding year ahead.
Additionally, a wave of upcoming mergers and acquisitions is likely to create its own C-suite layoffs. The number of state-owned enterprises has been declining for nearly two decades. According to OECD data, there are 30,000 fewer than in 2005. A new report by Schroder notes that of the 977 companies in the United States that have been delisted since 2010, 84% did so because that they were bought by other companies.
As Schroder’s head of research and analysis, Duncan Lamont notes: “A boom in corporate buyouts has been accelerating for several years. But the party may just be starting. The conditions are perfect for a new boom in M&A activity: many companies are full of cash, the “dry powder” of private equity is near an all-time high (money raised but not yet invested) and costs. borrowing rates are historically low. “
All of this could give stocks a boost – waves of mergers and acquisitions, like share buybacks, usually do. But it will also lead to consolidation, which will inevitably lead to new successions.
The CEOs who remain standing will have their hands full. The favorable winds from the Fed that have kept stock prices high for so long are changing, Central Bank Chairman Jay Powell indicating that the gradual cut and rate hikes may come sooner provided that. This is a good thing, because it will bring foam out of the markets. But it won’t be good for profits. The inflation we see for both goods and labor will not be either.
Meanwhile, as markets evolve, business leaders are likely to come under pressure from all sides. In the first place, activists like Elliott will undoubtedly ask for more belt tightening. But there will also be pressure from unions, which are experiencing a resurgence, from governments seeking more and better environmental, social and governance commitments and from all those who have a vested interest in “stakeholder” capitalism instead. as “shareholder”.
Judging success on something outside of the stock price is, of course, a good idea. But there is still no clear agreement on what the new measures of business performance should be – although governments and regulators on both sides of the Atlantic are trying to come up with ideas. It is difficult for business leaders.
But while metrics may be blurry, CEOs are already valued by the market not just on revenue goals, but on how they articulate values, tackle inequality, manage talent, organize supply chains. , affect the environment and engage with employees, customers and local communities. .
Indeed, the authors of the Conference Board study hypothesized that this could be another reason for the sharp reduction in the gap between the succession rates of CEOs of top and bottom performers. As the study noted, it is possible that “factors other than market performance are starting to weigh more heavily” in a board’s decision whether or not to retain a CEO.
The fictitious Roys aren’t the only ones facing scandal, share prices and succession. By choice or by force, more executives may soon have more time to perfect their descendant dog.