“CEOS HAVE A HABIT OF OUTSTAYING THEIR WELCOME!”

 

We may be enjoying the balmy summer days with test cricket, the World Cup, Royal Ascot and Wimbledon upon us. However, the business headlines are continuing to shake the very fabric of financial society.

Reams has already been written and reported on Sir Martin Sorrell’s departure from WPP with indecent haste and the rather tawdry and lude allegations of his private life, providing the reasons for the severance of his connection from WPP, after 33 years of devoted servive and relentless duty. I have no intention of having the drains up on any aspects of his alleged tasteless private life which he vigorously denies.

 

However, suffice to say there is a strong message that should go out to all chief executives, who are prone to outstay their welcome, even if they are entrepreneurs like Sir Martin, who built WPP’s business up man and boy. An over-extended tenure of such senior positions is fraught with danger. The situation becomes even more exacerbated when the CEO involves himself metaphorically with anything from the purchase of paper clips to corporate finance. It will eventually and inevitably end in tears. There is no doubt that the art of good management is delegation. It appears that Sir Martin was none too smart on this point and because he could hardly spell relaxation; hence the waters on genuine expenses and leisure were muddied. Sir Martin has been immersed in his operation since its inception, with I suspect business and pleasure being one and the same thing.  How well his new advertising venture will be received remains to be seen. In passing, how Roberto Quarta, WPP’S chairman was allowed to walk out of the door, without signing a ‘non-compete’ agreement amazes me and many other observers.

 

Sir Martin’s unfortunate plight is frankly purely a catalyst. Sir John Rose made the same mistake as CEO of Rolls Royce. He took over in 1996 until 2011 and saw the share price go from 235p to 1150p. He handed over to John Rishden, the then CFO, who completed 14 years at RR, when he retired as CEO in 2015. The share price then was 800p.  The cracks in the business started to appear, the allegations of bribery, the profits warnings, triggered by increasing expenditure, all started to manifest themselves. Warren East, the newish CEO, who came from ARM Holdings, who has been CEO since July 2015, has been attending to these issues, streamlining the company from five divisions to three.  Of course, cost-cutting exercises and we suspect 4000 redundancies will be implemented before too long. There has been too much duplication of the middle management. Again, these changes will need to be delivered to give momentum to its share price – currently 832p.

 

As for Tesco’s Sir Terry Leahy, he was in situ for 14 years – too long. He did an amazing job. However, when he left, Tesco’s share price was 400p. It then fell to 162p under Phil Clarke and is currently in remission under the stewardship of Dave Lewis – share price today 249p. So often after a sustained period in office CEOS cannot see the wood from the trees.  It needs a fresh outlook to prevent mistakes and fresh initiatives to take the company forward. There are many other illustrations of CEOS out-staying their welcome – too many to list.

 

David Buik

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