Tick Tick Tick - Industry Trend or Event

Industry Standard, The, April 16, 2001 by Jennifer Couzin

In a tech-driven economy, speed matters most. Which means CEOs have to move faster than ever to please investors -- and to save their own jobs.

Sitting in his spacious office at the Delray Beach, Fla., headquarters of Office Depot, CEO Bruce Nelson can hear the clock ticking. All eight of them.

You can hardly blame Nelson, 56, for being obsessed with time. With responsibility for 947 stores around the world -- from Tokyo to Poland to Denver -- Nelson is constantly tracking operations in more than eight time zones. The clocks on his office wall are also a reminder that he may not have much time to fix his troubled company.

The job of CEO has never been leisurely, but Nelson's typical 14-hour day is a sign of changing times. Never before have CEOs had to accomplish so much so quickly -- or else. The number of CEOs failing the speed test reached new heights from October to March: 679 chief execs of U.S. companies departed during that period, a rise of 56 percent from the same time a year ago, says outplacement firm Challenger, Gray & Christmas [see chart below].

The churn is usually blamed on shareholders who have grown impatient during this economic slump. But there are other, technological factors at work. The pervasiveness of information technology as well as the high expectations created by the performance of technology and Internet firms in recent years have led companies to expect faster results from their leaders.

"The pace of business has increased a lot in the new economy," says Joe Galli, who voluntarily left his post as chief executive of VerticalNet after 24 weeks to lead Newell Rubbermaid. "Decisions need to be made faster. It's not a job anymore where you can sit back in the office and monitor operations."

Even the most technologically savvy leaders can feel overwhelmed by the speed with which they must make decisions. "It's put the CEO on call 24 hours a day," says Scott McNealy of Sun Microsystems. "People expect me to answer e-mail within 24 hours."

The rate with which the ax falls on CEOs has also accelerated. In the early 1980s, most CEOs seemed to last at least 10 years, often longer. Challenger data suggests that today five or six years is more the norm. And many don't survive that long. Gillette ousted Michael Hawley after 18 months. Procter & Gamble's Durk Jager stepped down after 17 months. By these measures Nelson, who took over the corner office after his predecessor was fired 8 months ago, still has some breathing room.

Today's CEOs are like "small ships in a turbulent sea -- they have very minimal control over their destinies," says Jeffrey Garten, dean of the Yale School of Management and author of the recent The Mind of the CEO. The image of CEOs as mere mortals buffeted by forces they cannot harness -- such as technology-driven globalization -- contrasts sharply with the conventional view of corporate leaders as superstars. Lee Iacocca of Chrysler is the archetype of the flamboyant, old-school CEO, credited with bringing his company back from the dead with his unbending will.

Iacocca's steady hand is no longer enough to steer a company in today's choppy seas, where technology makes it possible for competitors to emerge almost overnight. Speed is the key asset in the global economy, yet CEOs still have to make correct decisions or face the consequences. In 1999, when Wall Street analysts were bubbling over learning software for kids, Mattel CEO Jill Barad decided to buy the Learning Company. But the software firm began hemorrhaging money almost immediately, a problem Mattel hadn't predicted. Nine months later Barad moved on. "Leadership comes into question more quickly today," says Kenneth West, a senior consultant for corporate governance at TIAA-Cref and a board member of Motorola.

Then again, a CEO can't ponder big decisions too long for fear that a new competitor might get the upper hand. Recall how former Oracle executive Tom Seibel blindsided Oracle when he launched Seibel Systems, forcing the software giant to play catch-up. "There are so many more players in the game," says Garten.

CEOs can thank the formerly high-flying technology and Internet companies for putting them in this speed fix. As companies like eToys (now bankrupt) and Amazon.com grew at triple-digit rates, investors and corporate boards came to expect better results from their companies. "Venture capitalists have created a get-rich-quick philosophy that [has] penetrated the corporations," says Mike Hagan, CEO of VerticalNet. "It's like a baseball manager: You've got two years to get me to the playoffs; no more five-year plans." Former Maytag CEO Lloyd Ward found out that the growth he envisioned for his Fortune 500 company wasn't enough to please investors. "I remember talking about 10 to 15 percent earnings growth, and there weren't many takers," says Ward, who lasted only 15 months as Maytag CEO before taking the helm at iMotors.

Tech and Net companies also put pressure on CEOs to rapidly improve stock prices. "I think there were a lot of people managing traditional companies that probably had more pressure that they put on themselves," says Neil Austrian, who is on the board of directors at several companies, including Office Depot. Austrian insists that no responsible board would expect to see an artificially high stock price. But CEO sackings often coincide with a sinking stock price. Last year after Office Depot's stock dropped from $11 to $6, the board fired then-CEO David Fuente. "That's what's distressing to me," says Tom Neff, chairman of the U.S. division of executive recruiting firm Spencer Stuart. "It really is too short-term-oriented, and it's certainly not very forgiving."