Articles and Commentary
January 27, 2015 - Fast company
This Might Be The Toughest Year Yet For CEOs
For U.S. companies, 2015 brings good news and bad. The good news is that the majority of CEOs believe there are more growth opportunities, according to the 2015 U.S. CEO Survey by PwC. The bad news, however, is that most perceive the environment to be more volatile and unpredictable than before.
“U.S. CEOs are reporting higher confidence due to improvements in the stock market, the energy crisis, unemployment rates and consumer confidence,” says Bob Moritz, senior partner and U.S. chairman of PwC. “But they’re also worried about more threats to business growth in 2015 than they were three years ago.”
Stephen Miles, CEO of the leadership consulting firm The Miles Group, says today’s CEO faces unique challenges: “From managing the demands of their boards to effectively leading a sprawling global organization, the CEO’s job has never been tougher,” he says. “The top of their agenda is dominated by threats and opportunities, taking on a greater urgency than ever before.”
From hackers to new hires, Miles shares four hurdles CEOs must clear in 2015, making this year, perhaps, their toughest yet:
Target, Home Depot and Sony all fell victim to varying forms of cyber-hacking in 2014, and Target CEO Gregg Steinhafel lost his job over it. The PwC survey found that 86% of CEOs view cyber threats as the highest business risk in the world.
“Failure to manage the threat of cyber attacks is the kind of thing that CEOs get fired for, and the real concerns around this have only just begun,” says Miles.
Any company can get hacked at any time, says Sydney Finkelstein, professor of strategy and leadership at Tuck School of Business atDartmouth College, and while stealing credit card information has been the most frequent use, collecting and releasing internal documents is a growing concern.
“It’s hard to believe what happened at Sony won’t happen again,” he says. “People hold grudges against companies and leaders, and all CEOs should plan for this as they would plan for any other event that has a real possibility of happening.”
Brad Brooks, CEO of the text messaging appTigerText, says the widespread use of email—still considered the number one method of business communication—leaves companies vulnerable: “Privacy and security are going to take center stage in 2015,” he says. “The challenge for CEOs will be to find alternative methods of communication that consumers can easily adopt, while maintaining productivity.”
A good test of any CEO whose information is hacked is the effectiveness of their response plan. “If they haven’t rehearsed and thought about crisis management, you have to wonder how strong that leader is,” Finkelstein says. “There may have been sympathy shown to companies early on, but there is less patience on the part of shareholders and media toward companies who are hit and haven’t planned for it.”
2. PRESSURE TO INNOVATE
Consumers are always looking for the next best thing, and that means CEOs have to be constantly innovating.
“The productivity agenda that reined since the global financial crisis began has been extremely effective, but there is now massive pressure on CEOs to grow their companies,” says Miles.
Finkelstein says this drive for new products and services makes it more difficult to run a business: “When you’ve run out of ideas, you need to consider mergers and acquisitions, which can take a company further away from its core business,” he says.
Over half (59%) of U.S. CEOs say they expect to complete a domestic acquisition this year, up from 39% a year ago, finds the PwC study, but this can make CEOs vulnerable to missteps and activist investors, says Finkelstein.
“The merger and acquisition wave allows companies to grow, but it’s difficult to integrate an acquisition effectively and make it work,” he says. “When diversification becomes too broad, CEOs can lose their jobs.”
3. BOARD IMPATIENCE
Boards are ousting underperforming CEOs much faster and more aggressively than in years past, says Miles. “There is an urgency around performance metrics, and an expectation on CEOs to be able to shift quickly on strategy,” he says. “If CEOs cannot ‘take the board on a journey,’ as they say, or cannot engage with the board around his or her leadership vision, then they will likely fail.”
John Sculley, former CEO of Pepsi and Apple and author of Moonshot! Game Changing Strategies on How to Build a Billion Dollar Business, says boards are often shortsighted on how they measure a CEO’s performance: “CEOs are short-terming the performance of company during their watch to hit metrics,” he says. “As a result, CEOs turn over quickly in big companies; the typical CEO is in their job for four or five years max.”
This puts a company’s long-term success at a risk: “Peter Drucker was very prophetic when he said the whole reason business exists is to create customers,” Sculley says. “To be a successful, sustainable company, boards should measure CEOs on customer satisfaction. The other numbers will follow.”
4. SHORTAGE OF TALENT
Whether they started out that way or not, all businesses are in thetechnology industry today, says Sculley. The key to success is to use the current infrastructure as a way to forward your products or services. That means businesses must recruit for a wider range of skills.
More than half of CEOs in the PwC study said they expect to expand headcount in 2015, and 80% are concerned over the availability of key skills.
“Hiring in tech is highly competitive—and that’s an understatement—so retaining talent and growing your team should be a priority at all times,” says Sanjay Patel, cofounder and CEO of the video communication platform Personify.
Linda Henman, author of Landing in the Executive Chair: How to Excel in the Hot Seat (Career Press, 2011), says an added challenge is the baby boomers who are leaving the workplace in droves.
“So many companies halted development programs during the economic downturn that some leaders will experience critical shortages in key areas,” she says. “Companies were in a defensive mode until about a year ago. Then the economy shifted, and companies started spending some of their cash on new talent. The economy continues to improve, so we’ll see more hiring.”
CEOs must create an environment where the best people can do their best work, says Henman. “To accomplish this, they need to upgrade their talent, starting with the next new hire,” she says. “This can’t be an HR initiative; it has to come from the top.”
PERHAPS THE BIGGEST CHALLENGE OF ALL
While each year brings its unique challenges, Finkelstein, who publishes a list of the five best and the five worst CEOs each year, says many of those who fail do so because of personal flaws:
“The common theme among the CEOs I choose as being the worst is always human nature,” he says. “It’s a combination of arrogance and complacency that never goes away. People who become powerful, influential and successful often begin to believe they’re smarter than everyone else. It’s only a matter of time until they’re shown to be not perfect.”