With growing and more critical media scrutiny, increasing shareholder expectations of higher performance and better results, why would any smart senior executive pitch for the chief executive’s job?
Paul Reilly was CEO of global accounting consultancy KPMG. He led business with 100,000 employees in 156 companies. Now he is CEO and chairman of worldwide recruitment company Korn/Ferry International, business with 70 offices in 36 countries.
Having led two of the world’s most successful, albeit rather different, service businesses, Reilly has unique perspective on the role of the CEO. He shared his thoughts about it and about the state of the executive job market with management writer Stuart Crainer. They met at Reilly’s home in St Petersburg, Florida.
How long should CEO remain in the job?
It depends on the company. What is required is the CEO’s ability to change along with the business and keep ahead. Effectiveness depends on the skills the enterprise needs at that time. Different sized companies need leaders with different scale experiences. Then there are specific situations, like turnarounds, which require specific abilities. But for every rule there is someone like Bill Gates who takes start-up and turns it into one of the world’s biggest companies.
When it comes to changing CEOs, sometimes it is simply time for change. They say that political leaders get too much credit when things go well and too much blame when things go wrong. I think that applies equally to CEOs.
What are the key performance measures for CEO?
There is lot of focus on the short-term numbers. I look at market numbers and also at developing strategy which is long-term. I could do more to improve short-term performance, but are they strategic and sustainable? The trick is to execute effectively in the short-term while creating long-term strategy and setting targets. There needs to be balanced scorecard.
What about the relationship between the CEO and the board?
The board’s job is increasingly crucial. Managing the board wasn’t challenge for me (at KPMG) because in professional services organisation you share information. Everything is shared with the board. Meetings are very open.
There’s lot of debate about non-executive chairmen. The argument has its pros and cons. Having separate chair is technically superior, but sometimes they simply don’t get along (with the CEO). They are different personalities. I am chairman and CEO and I am comfortable with that dual role. But our board is very active. The board’s job is not to run the company, it’s to provide oversight. At the same time, debate is good.
Is there too much emphasis on short-term performance?
In some cases the markets are too short-term. But clearly, part of CEO’s job is to deliver short-term results. There are no time-outs in business so there is bias to the short term. The important thing is to understand that everything you do you must live with.
Have CEOs been unfairly maligned in recent years?
The last couple of years have been pretty tough on all employees, CEOs in particular. The media can make it appear that every CEO is crook or entirely self-serving. There is lots of coverage of Enron, Parmalat and the like, but when all that was happening some CEOs were taking salary cuts and dealing with low morale induced by pay freezes and so on. CEOs worked harder and got less recognition.
It’s true also that some CEOs were over glorified for simply riding on the back of market forces. But most employees trust their CEOs.
There is still feeling that CEOs are overpaid.
There is some feeling that CEO compensation is out of step and that the spread between the pay of the average worker and the CEO is out of whack. In reality, CEO compensation was down last year. It does in fact follow the market. If you look around – in merchant banking for example and elsewhere – there are many people who earn more money than CEOs.
CEO compensation should be tied to performance. But it is capitalist system. Shareholders didn’t complain when times were good. While shareholder activism and greater transparency are probably good things, their impact will lessen as the economy improves.
The CEO still does job. The period in the 1990s when superstar CEOs were glorified has gone. People expect the CEO to be strategic, to bring team together and get things done. It is about integrity and implementation. Knowing the business and getting the job done.
While the money is obviously nice, CEOs are in the job because they want to make difference. If the pay was less, people would still want to do it.
Is there global market in CEOs?
There is globalising trend. few years ago all CEOs were local. In industries which have globalised, like financial services, this is no longer the case. Changes are happening. Look at the American executives at Deutsche Bank; Jim Schiro, CEO of the insurance company, Zurich; or the American co-CEO at Credit Suisse.
In the global market talent is everything so the global market for CEOs is evolving. The challenge for executives who aspire to CEO positions is to have international experience.
At the same time you have to be realistic and accept that boards judge character when they hire CEO. They are likely to be more comfortable with local candidates. They will understand the nuances.
Being global CEO is tough job. It is 24 hours day. You are always travelling. There is non-stop cycle which is very demanding. It is day and night job.
How do you spend your time?
Initially I spent more time at head office getting to know things. Then it became question of getting the right team in place, placing people internally into the right positions. Now I spend perhaps 20 percent of my time internally, the rest is about pushing the strategy into the organisation and the marketplace. CEOs now are more market facing, out with their customers and their people.
There is transformation stage and then driving stage. There is not necessarily maintenance stage any more. If you’re always transformation person you die.
The job changes all the time. Some people are naturally curious. They can’t help but learn. No matter how many times you run company you learn new things and acquire new skills.
What attributes do you bring to the CEO’s job?
I am strategically oriented in terms of vision. But I am also an implementer and bring people along.
Do you spend much time on succession issues?
I think about succession every day. I worry about developing people because that is what companies are worst at. They talk about it being people business, and then keep people in their jobs and end up with group of individuals with limited experience who have been in their jobs too long. It is hard to tell people they need to move on but some companies manage to do it exceptionally well.
What does the future hold for the executive recruitment business?
The demographics are very good for us. Demographically there is little or no growth in the workforce. More people are retiring. Ten percent of the US workforce was retired at the start of the decade, by the end it will be 19 percent. There will be shortage of management talent.
And we’re now in an improving economy with people investing. So there will be more demand for good people.
Next there is what I call velocity. According to recent executive survey, 58 percent of executives plan to change jobs in the next year. They won’t all do so, of course, but they want new horizons. There will be more velocity in the marketplace.
All this makes for higher demand all round. That’s why I moved into the business. I felt we were in new industry while I had previously worked in mature industry. There is only handful of global human resource companies so there is chance to globalise in unique way.
Finally, our industry has traditionally been single product business. We are evolving to human capital solutions business offering broader range of services.
