Recommended Reading - Paying Big Bonuses Exposes Wall Street's CEO Succession Failure

Lisa Kasenaar wrote an on-point piece for Bloomberg on the problems associated with high executive compensation at the top banks and the frequent failure for those firms to properly plan for succession. Kasenaar wrote,

The global credit crunch and economic collapse of the past two years exposed pivotal management mistakes at the biggest U.S. banks — from slack risk oversight to multimillion-dollar bonuses for bankers chasing short-term profit.

Lewis’s (refers to Ken Lewis of Bank of America) exit highlights another kind of poor bank stewardship: the failure of CEOs and boards of directors to plan for an orderly succession when it’s time for the top person to leave.

Inadequate planning derails a company’s strategy and destroys employee morale, former executives, investors, recruiters and leadership consultants say. In the past four years, disorganized transitions cracked the foundations under some of the world’s biggest financial institutions, including Citigroup, Merrill Lynch & Co., insurance giant American International Group Inc. and Zurich-based UBS AG.

Anyone interested in compensation or succession planning must read the piece.

Struggling Borders' CEO Resigns

Borders Group BGP (NYSE), the struggling book retailer,

announced today that its CEO, Ron Marshall, has resigned as CEO and director of the firm effective immediately. Marshall was appointed CEO just over a year ago. Borders has been struggling for some time and has been facing increasing pressure from activist investors (Pershing Square Capital). At the same time the company has appointed EVP and Chief Merchandising Officer, Michael J. Edwards, as the interim CEO. According to a story by Mark Clothier for Bloomberg,

Borders… last reported an annual profit in 2006, has seen revenue drop for the past three years as consumers spent less on books and non-essential items amid declining home values and rising unemployment.

Marshall’s resignation comes after the company announced very disappointing sales news. According to a blog story in The New York Times,

Last week, the company announced a nearly 14 percent decline in sales over the 11-week holiday period ending Jan. 16, compared with same period last year. The company was also forced to issue a statement denying rumors that it had extended the time it took to pay bills to small publishers.

Rumors abound that Marshall’s comes as he is about to take a new CEO position.The interim CEO has a very difficult task ahead of him. Edwards has extensive retail experience but he has never faced a more daunting task than the problems currently faced by Borders. The search for a new CEO will need to find a possible miracle worker.

For more:

MarketWatch

Slate's Big Money (update 1/27)

Recommended Reading - Once an Outsider, Always an Outside? CEO Origin, Strategic Change and Firm Performance - Rice University

Yan Zhang, a professor at the Jesse H. Jones Graduate School of Management Rice University and Nandini Rajagopalan from the Department of Management and Organization at the Marshall School of Business University of Southern California have written a fascinating paper entitled, Once an Outsider, Always an Outside? CEO Origin, Strategic Change and Firm Performance. The authors according to a piece in Cellular- News have put together a,

... study that looked at the tenure and performance history of 193 CEOs in the industrial sector between 1993 and 1998. The researchers found that in the first few years of tenure, there is very little difference between the performances of CEOs promoted from within a company and CEOs hired from the outside. However, in later years, internally promoted CEOs outperformed externally hired CEOs.

“Newly appointed CEOs, both outsiders and insiders, tend to make changes, and it may take years to observe the performance impact of the changes,” Zhang said. “Therefore, the relative advantage or disadvantage between ‘inside’ and ‘outside’ CEOs in initiating and implementing appropriate strategic changes is not seen immediately.”

However, after three years, it’s clear that inside CEOs fare better than outside CEOs, according to Zhang. “When it comes to strategic change, outsiders typically are good at doing the rapid cost cutting and divestment. As tenure increases, obvious opportunities for cost cutting and divestment dry up. Inside CEOs, because of their deep knowledge and root in the firm, are more likely to initiate and implement strategic changes that can build the firm’s long-term competitive advantage,” Zhang said.

After reading the paper, I was not at all convinced by the research results presented by the researchers but anyone interested in key executive changes and what they mean with relation to corporate performance should read the paper.

CEO Watch - Vikram Pandit, Citigroup Update #3

The ongoing saga at Citigroup continues. Vikram Pandit, who took over as Citigroup’s CEO two years ago, is approaching an imaginary make or break deadline. While Pandit is not responsible for the difficulties Citigroup got itself into, his management style and circumstances have not brightened his star as CEO. Throughout his tenure he has been making top management changes and has slowly addressed many of the problems facing the company, he has not, however, appeared to be a take charge executive and has often surrounded himself in a cocoon with a small group of close executives. According to a story by Eric Dash in today’s New York Times,

“We have made enormous progress in 2009,” Mr. Pandit said on Tuesday. The question is whether Citigroup and its leader are progressing quickly enough to satisfy restive employees and shareholders. Even some Citigroup executives say privately that they are worn out after a seemingly endless stream of late-night calls, emergency meetings and management turmoil.

… Given that showing, Mr. Pandit is under pressure to prove that the company can finally make money. Prince Walid bin Talal of Saudi Arabia, a major Citgroup shareholder, said last week in an interview with the Fox Business Network that he had told Mr. Pandit that the honeymoon was over. “Now it’s time to deliver,” he said.

The bank announced another terrible quarter the other day. while numbers were not a surprise, time is no longer on Mr. Pandit’s side.

For more:

HuffPost

Key Annual and Quarterly Management Change Numbers 2005 - 2009

2008 and 2009 have had surprising results when examined for executive turnover. While the United States went into recession back in December 2007, and most of the world suffered from the growing credit/financial crisis, overall executive turnover levels followed a declining trend as we moved through 2008 and 2009.

• For 2008 CEO turnover declined nearly 10%, CFO turnover declined 14% and overall C-level (as defined by Liberum Research as board of directors, CEOs, CFOs down to corporate VPs) turnover declined nearly 15% as compared with 2007 totals.

• The number totals continued to decline even more precipitously for 2009. CEO turnover declined 27%, CFO turnover declined 36% and overall C-level turnover declined 30% as compared with 2008’s already low levels. The numbers would be even more stark if compared with 2007.

The declines in executive management took place while overall unemployment in the United States and Canada continued to increase as we moved through 2008 and 2009. By the end of 2009 with the recession statistically over, the United States had, according to the U.S. Bureau of Labor Statistics, an overall unemployment rate of 10% one of the highest rates for the last few decades.The continuing declines in executive turnover were seen both on a quarterly and annual basis. Public companies, unless forced to by business events or scandals, have shown a reticence to make changes in their top executive ranks as the leaders of those corporations have made efforts, and in many circumstance extreme efforts, to tightened their belts, lower expenses, inventories and overall employee levels within the lower ranks of corporations. We expect that once the economy begins to truly recover, the level of executive turnover will begin to rise.