Its time to puncture the myth of the heroic CEO
By
Matthew Lynn Oct 16, 2009
Print this article
ITV is currently providing more entertainment off-screen than on. For the past few months, the broadcaster has kept the City amused with its search for a new chief executive (CEO) and chairman. The tale has had more plot twists than Emmerdale, more failed auditions than the X-Factor – and now seems to have been running for longer than Coronation Street.
Last Monday, ITV said John Cresswell, currently chief operating officer, would become interim CEO, but would leave once someone was found to fill the job permanently. At the same time, Michael Bishop, founder of the British Midland airline, said he wasn't interested in becoming ITV chairman, as did Sir Crispin Davies, former chairman of publisher Reed Elsevier. The executive chairman, Michael Grade, has already said he'll leave the firm, so ITV has spent the last few months embarrassingly courting a series of high-profile successors. Tony Ball, former boss of BSkyB, was the front-runner for a while, until his demands for a multi-million-pound package became too much for the board to stomach. Sir Christopher Gent, former Vodafone boss, and Sir Christopher Bland, former BT chairman, have also been linked to the chairmanship.
Yet, for all the apparent chaos, ITV may be doing the stockmarket a big favour. In the last decade, British companies and the shareholders who at least nominally run them have become enthralled to the myth of the heroic CEO. They have allowed themselves to be bamboozled into believing that a single person can have a huge impact on the future of the business, and that it's worth paying tens of millions to secure the right man or woman. What the ITV debacle may teach them is that this is expensive nonsense. Let me explain.
ITV certainly has more than its fair share of problems. It called the development of digital, multi-channel television wrong, and made a hash of its own attempts to get into pay-TV. What was once a licence to print money has been turned into permission to lose it. The cost of making new dramas and sitcoms and buying the rights to sporting events needed to pull in viewers rises all the time. But ITV no longer has a monopoly on television advertising, and the recession has hit the advertising market hard, leaving the group squeezed on all sides. In 2008, it lost £2.5bn. But it's a mistake to imagine that a single CEO can sort that out overnight – and it's a mistake that too many big companies now routinely make.
Whenever a firm gets into trouble, the cry goes up from the shareholders, the bankers and, of course, the media, for a new CEO to be drafted in. The head-hunters get to work, and a new boss is found, usually at vast expense – we've seen it at Sainsbury's, Marks & Spencer and countless others. Indeed, we saw it last time around at ITV when Michael Grade was drafted in from the BBC. It's one of the reasons why CEOs are now routinely so well paid – the average FTSE boss is now paid more than £5m a year and, collectively, the FTSE 100 boards cost more than £1bn a year.
Yet, they're very rarely worth it. Most companies face a fairly constrained set of circumstances. Their immediate outlook is determined by the type of product they sell, the state of the competition, and the state of the economy. All of those are a given: a new CEO can no more change them than change the weather. Very rarely is there some big strategic move that will suddenly transform the firm's prospects. Nor is there a whizzy change of direction that can turn a failing organisation into a successful one. Indeed, the attempt will often do more harm than good. What most companies need is an intense focus on detail, and the patience to develop new products and markets. You don't get that from a big name looking to make an instant impact.
ITV is a prime example. Its business has been overtaken by technology and fierce competition from Sky. Nothing much can be done about that now. There is probably a good business in there somewhere, but it will be smaller and less profitable than the old one. You don't need to spend £40m on a new CEO to discover that – you'd be better off paying £1m to a competent insider and spending the rest of the money on a few decent dramas. Pretending there's a magic wand that can be waved is a useful move for the CEOs themselves. It allows them to justify their huge pay packets: after all, to collect superstar wages you have to be a star. It's good for the headhunting industry, allowing it to justify monstrous fees. And it is good for the media and the City, which can use the speculation to whip up some interest in the shares.
But it is very rarely good for the company itself. Probably the only FTSE 100 CEO of the last decade who actually made a real difference to his company was Lord Browne at BP. He pulled off some big acquisitions when the oil price looked bombed out for a generation. Most of the rest could have been safely swapped with someone else without anyone, apart from their secretaries, really noticing.
In truth, of the £1bn paid to FTSE boards every year, at least £900m would have been better paid out as higher dividends. They just aren't worth the money – and ITV may well be the company that finally drives that point home to shareholders.
Published in
Stock markets
| More
articles
by
Matthew Lynn
Related articles
-
Nov 20, 2009
-
Nov 20, 2009
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.
