NBR, 12 December 2008, Table Talk by Nicki Crauford

Turnover rises at the top
Booz & Company’s annual Chief executive Turnover Study shows the chief executive turnover rate jumped from 13.4% in 2006 to 18% in 2007 on the back of more planned transitions and takeover activity. The rate was the highest on record since the study began in 2000 and outstrips the global average of 13.8%. However, the number of forced departures due to poor performance dropped by 39% to 2.2% – well under the global average of 4.2%. And departing chief executive performance improved. The average total shareholder return was 22% – an 18% increase on 2006.

Market takes its toll
In discussions with chief executives, some anecdotal feedback on what is driving higher turnover emerged:

• Australia is a tough market in which to perform. Growth agendas often require chief executives to consider expansion into Asia. This comes with its own challenges and risks. To succeed requires huge amounts of time and effort. Chief executives often give it their all, achieve results and then need a break and leave the organisation altogether.
• Ambitious chief executives, once they have kicked some goals, will often use Australia as a springboard into the global marketplace and seek a bigger role overseas. Alternatively, strong performing chief executives are often head-hunted and pulled into the global market, enticed by large salary or remuneration packages.
• Boards will motivate chief executives with extremely attractive remuneration packages, but they can be focused on the short-term. Directors encourage chief executives to pull out all the stops in the first few years of tenure after which the chief executives often burn out.
• As the external marketplace continues to become more demanding and complex, many chief executives are taking a step back and looking more favourably at their lifestyle choices.

How to retain your chief executive
So what can boards do to improve retention? Vicki Sherwood, co-author of the study, observes: “Boards must look to create sustainable portfolios for chief executives. The more chief executive succession is planned and controlled, the greater the opportunity the board has to start an incoming chief executive within a business-as-usual environment. Boards should also consider the chief executive within the context of the broader top team. Recognising that leadership is a team sport – rather than planting the weight of the entire organisation onto one person’s shoulders – will help distribute accountabilities and better balance organisational challenges, issues and targets. Don’t underestimate the power of teamwork – from a number of dimensions. Not only can you achieve the 1+1=3 equation, but camaraderie and a supportive, collegiate culture create an environment that people don’t want to leave.”

Invest in the future
Ms Sherwood adds: “Developing leadership courses that truly address the challenges of the current market environment can not only attract, but also retain chief executives. Boards need to be ready to invest in diversification programs, to bring in leadership coaches and even go as far as rethinking the skills and capabilities required at a board level to support chief executives.” She says boards should also ensure that incumbent chief executives play a critical role in developing future leaders within the business because that can build their commitment to the organisation and the individuals within it.  In addition, Ms Sherwood believes boards should plan to spend more personal time with chief executives or prospective chief executives, understanding what is important to them as individuals and tailoring their approaches to personal agendas and
situations. “Finding out what individuals want and value is a key to retention. The top job is only given to one person in each organisation. Boards must recognise the significance of individualism. Every one of us is different – with differing personal values and family or financial situations.”

• The Institute of Directors in New Zealand received this information from its Australian counterpart, the Australian Institute of Company Directors (AICD) and would agree that Ms Sherwood’s comments would probably apply to most New Zealand board and CEO behaviour.