US, Inc. set for record CEO changes

NEW YORK: Chief executive officers are falling faster than ever this year. In just the first 12 days of September, leaders at Bristol-Myers Squibb, Ford Motor and Viacom were deposed — fueling the breakneck pace in which one CEO departs every six hours.

US companies are on track to fire or lose a record 1,400 chiefs in ’06, up from 1,322 last year and 663 in ’04, says executive recruiting firm Challenger, Gray & Christmas in Chicago. From Sun Microsystems and Pfizer to Kraft Foods and RadioShack, most types of firms have felt the rash of CEO departures.

Chiefs are being pushed out the door as directors abandon their laissez faire approach to governance following the prosecutions at Enron, WorldCom and other companies. About 96% of companies in the Standard & Poor’s 500 Index now have independent lead or presiding directors, up from 36% in ’03, says a s“Boards are under a lot more pressure, and they’re being hypervigilant,” says Donald Hambrick, a management professor at Pennsylvania State University’s Smeal College of Business in University Park. “They are cleansing.”

For a price. The average severance package for a departing CEO totaled about $16m in the past three years, according to the Corporate Library, a governance watchdog group in Portland, Maine.

New York-based Bristol-Myers, a board with nine independent directors pushed out CEO Peter Dolan for botching a deal to keep a generic version of the drugmaker’s top-selling heart pill, Plavix, off the market. Dolan, served for five years, an eternity compared with other firings in ’06.

Sumner Redstone, chairman of New York-based Viacom, booted CEO Tom Freston after just eight months. Redstone told investors that Freston’s failure to translate the MTV network’s success to the internet helped drive the stock down 7.6% during his tenure.

Philip Knight, chairman of Nike, employed the same trap-door treatment on William Perez. Knight hired Perez, to replace him as CEO and canned him one year later, in January. Leaders don’t get the deference once reserved for the likes of former General Electric CEO Jack Welch, says John Challenger, head of Challenger, Gray & Christmas.
“The days where you learn from your mistakes, are over,” Challenger says. “The results have to be immediate, strong and consistent.”

William Clay Ford Jr. failed to get those results after taking over the No 2 US carmaker in ’01. As global competitors such as Toyota reduced Ford’s market share every year since 1995, its chairman and chief executive set out to cut 30,000 jobs during the next six years.

With that plan sputtering, Ford handed the CEO job to Alan Mulally, a former executive vice president at Boeing, on September 5. Two weeks later, the automaker said it would offer all hourly workers buyouts and finish the previously announced firings four years ahead of schedule.

As Nortel Networks discovered, replacing a CEO may please shareholders without boosting a company’s performance. After cleaning up an accounting scandal, Nortel named former Motorola President Mike Zafirovski as its new CEO in October ’05. The shares rose 5.4% on the day of the announcement, and the telecommunications equipment maker said the company was on solid footing.

Seven months later, Zafirovski said it may take five years to turn around the Brampton, Ontario-based firm. In June, he cut 1,100 jobs. The stock has plunged 25% in ’06.

Even leaders who turn around companies are vulnerable. Hewlett-Packard chief Mark Hurd took over the struggling computer maker from CEO and Chairwoman Carly Fiorina last year. Hurd has taken market share from rival Dell and boosted the stock price 80% from the start of his tenure in April ’05.

“You’re rewarded if you turn things around like Hurd,” says Daniel Morgan, who helps manage $5.45 billion, including HP and Dell shares, at Synovus Investment Advisors in St. Petersburg, Florida.

Those rewards may be short-lived as the Hewlett-Packard spying scandal engulfs Hurd. The board on Sept. 22 removed Chairwoman Patricia Dunn, who oversaw a probe in which private investigators spied on directors and reporters to stop media leaks.

At a press conference on that day, Hurd revealed details of his involvement, saying he attended a meeting about the investigation and approved the sending of an e-mail from a fictitious employee to a reporter to identify the journalist’s source.