Succession is a hot topic today, not just because the unmissable HBO series of this name is coming to an end.Although Murdoch-oops, I mean Roy-brothers and sisters are arguing about their father’s media throne, in the real world, the heiress of Zara Marta Ortega Already at the helm of Spanish fashion group Inditex.At the same time, the weird tech giant Jack Dorsey Is resigning as CEO of Twitter to focus on leading his fintech company Square Parag AgrawalChief Technology Officer, succeeding him in this social media giant.
It is speculated that the new arrangement will not only give Dorsey more time to consider cryptocurrency, but will also give more room in the afternoon. Yoga class Activist investor Paul Singer must hate it.Singer’s Elliott Management He has promoted Dorsey’s removal on the grounds that no one should lead the two listed companies. As the market and the real economy become more severe, the leadership of large listed companies has become more difficult, which may also be a signal of a large number of C-level executives leaving.
Of course, one might argue that this has been the case for the past two years. In the first half of 2020, when the pandemic begins, the board wants to retain the CEO due to Covid-19. However, starting from the second half of 2020, the number of transition announcements has increased significantly. According to a study The Russell 3000 and S&P 500 indexes co-authored by the conference committee earlier this year. As the author of the report said, business leaders stated that “the burnout has increased after a year of turbulent and exhausting crisis management”.
This trend may be reflected in the fact that the succession rate gap (usually quite large) between poorer and better performing companies has narrowed significantly. The number of departures is rising, and it seems that there are as many reasons as executives being expelled from their jobs.
It may get worse. Even before the pandemic, the depth and breadth of digital transformation is creating one of the most dynamic but also challenging business environments in memory. Coupled with new concerns about employee health and well-being, supply chain reliability, changing consumer behavior, labor activism, inflation, and the Fed’s getting rid of loose monetary policy, the requirements for the coming year are extremely high.
More importantly, the upcoming wave of mergers and acquisitions is likely to lead to layoffs at the highest level. In the past two decades, the number of listed companies has been declining.according to The OECD data is now 30,000 less than in 2005. A new report by Schroder points out that of the 977 companies that have been delisted in the United States since 2010, 84% were acquired by other companies.
As Schroder’s head of research and analysis, Duncan Lamont notes“Over the years, the wave of company acquisitions has been accelerating. But the party may have just begun. The conditions for a further surge in M&A activity are perfect: many companies have ample cash, and private equity’dry powder’ is close to historical highs (funds have been raised but not yet invested) , The cost of borrowing is at a historically low level.”
All of this may bring some stimulus to stocks-waves of mergers and acquisitions, such as stock repurchases, usually do. However, it will also lead to mergers, which will inevitably lead to new successors.
The CEOs who remain will be very busy. The Fed’s tailwind, which has kept stock prices high for a long time, is now changing. Federal Reserve Chairman Jay Powell said that cuts and interest rate hikes may come sooner than expected. This is a good thing because it will eliminate market bubbles. But this will not benefit profits. Nor will the inflation we see in commodities and labor.
At the same time, as the market changes, business leaders may face pressure from all sides. First, activists like Elliott will undoubtedly demand more belt tightening. But it will also face pressure from resurgent unions, governments seeking more and better environmental, social and governance commitments, and all others who have vested interests in “stakeholder” rather than “shareholder” capitalism.
Of course, it is a good idea to judge success based on factors other than stock price. However, there is still no clear consensus on what the new indicators of corporate performance should be-despite the efforts of governments and regulators on both sides of the Atlantic to come up with ideas. This is difficult for business leaders.
However, although the measurement standards may be ambiguous, the market’s evaluation of CEOs is not only based on profit goals, but also how they express their values, solve inequality issues, manage talents, organize the supply chain, influence the environment, and interact with employees and customers. Interaction with the local community.
In fact, the authors of the Conference Board study speculate that this may be another reason for the sharp reduction in the CEO succession gap between better-performing and poorer companies. As the study pointed out, when the board decides whether to retain the CEO, “factors other than stock market performance begin to become more important”.
The fictitious Royce is not the only one dealing with scandals, stock prices and succession.Through selection or enforcement, more executives may soon have more time to perfect their Down Dog.