Executive Exodus I see less excellence and more exits.
By Ken Shelton
As the editor/publisher of Executive Excellence for 30 years, I must say: today I’m seeing less excellence among executives and more exit and exodus as organizations search in vain or vanity for the promised land of milk and honey after leaders bilk members of money.
Union with No Unity For example, United Auto Workers President Gary Jones and his predecessor Dennis Williams are targets of a federal probe into corruption, leaving the union and its members rattled after a hollow victory in their six-week strike against General Motors that resulted in $3 billion in lost profits. So far the probe has resulted in 12 charges and 10 guilty pleas among UAW leaders and some auto-company executives. Prosecutors accused a top aide to Jones and six other UAW officials of embezzling $1.5 million in union funds and filing false expense reports to conceal the crime. They rented villas, played golf at prominent courses, and drank expensive liquor. And their strike resulted in no real gains for the union. When GM CEO Mary Barra disclosed her last offer to the UAW before the strike, union members saw that the walkout led by Jones didn’t gain them more than the company offered. And Barra won her key demand: to maintain the labor flexibility the company needs for the future, including no reversals of its closure of three big assembly plants. As UAW membership dwindles, its future is uncertain. And get this: Rory Gamble, VP in charge of the UAW department that reached a deal with GM without a strike, has become “acting president” who vows to take the union forward.
Exodus of Executives CEOs are leaving in record numbers—1,332 have stepped down since January, even during robust corporate earnings and record stock market highs.<www.nbcnews.com/business/markets/dow-hits-record-high-rises-more-100-points-amid-us-n1076126> Last month alone, 172 CEOs left their jobs, many amid controversy. McDonald’s fired CEO Steve Easterbrook<news.mcdonalds.com/news-releases/news-release-details/mcdonalds-corporation-announces-leadership-transition> after he admitted having a “consensual affair” with another employee. WeWork’s CEO Adam Neumann accepted a $1.7 billion golden parachute <www.cnbc.com/2019/10/22/weworks-adam-neumann-to-get-200-million-to-leave-board-report-says.html> in exchange for walking away from a disastrous IPO. Kevin Plank, billionaire founder of Under Armour, stepped down as the company is the subject of a federal accounting probe. Nike’s CEO Mark Parker resigned, replaced by ex-CEO of <www.cnbc.com/2019/10/22/nike-ceo-mark-parker-to-step-down-john-donahoe-to-replace-him-in-2020.html> eBay.<www.cnbc.com/2019/09/25/ebay-ceo-devin-wenig-is-stepping-down-as-the-company-continues-review-of-potential-sale-of-assets.html> Lucrative exit packages and fears of a recession tempt chief executives to throw in the towel.
The #MeToo movement felled a number of leaders, from CBS CEO Les Moonves<www.nbcnews.com/news/us-news/six-more-women-accuse-cbs-ceo-leslie-moonves-sexual-misconduct-n907926> to billionaire casino magnate Steve Wynn<www.nbcnews.com/storyline/sexual-misconduct/steve-wynn-steps-down-ceo-wynn-resorts-amid-misconduct-allegations-n845376> and Intel’s Brian Krzanich<www.cnbc.com/2018/06/21/intel-ceo-brian-krzanich-to-step-down-bob-swan-to-step-in-as-interim-ceo.html>.
My Yale friend Jeff Sonnenfeld warns: “Beware of bosses who rely on smoke & mirrors. Glam and bombast will never replace substance and reliability. WeWork’s $47 billion valuation plummeted 80 percent the week before its IPO for good reason. The bombastic founder and now ex-CEO Neumann’s sale of over $700 million of his own shares ahead of an IPO was a sign that his real estate empire was house of cards. His global shared-space office complexes sprawl with fun foosball games, bean bag furniture and Nespresso machines for nomadic 20-somethings, but the glam factor couldn’t hide the huge financial gap of $47.2 billion of long-term lease commitments and only $3.4 billion in short-term leases to tenants. His owner-controlled governance system permitted naming his board, and his wife selecting a successor.”
These executive exits are a sign of investor pressure and heightened accountability from boards that have been too compliant and now see that it’s their job to be vigilant about CEO misbehavior. More boards now have a zero tolerance policy—and more women are replacing men in top jobs. Today, CEOs only last five years in their jobs, and more are leaving due to lapses in ethical conduct than for poor financial performance. However, pressure from activists and regulators can push boards to oust a leader just to get a bump in stock price. They go for the symbolism of sacrificing a CEO, but if they fail to address values and issues they tend to end up with another leader ill-prepared to face the music (like Sean Spicer on Dancing with the Stars).
Tower of Babbel: Leading by Witte and Word
Surprisingly we find a good example of exiting for the right reasons in Babbel<www.babbel.com/>, the Berlin-based language learning service. Its founder/co-CEO Markus Witte is stepping down from his CEO role but will remain executive chairman of the board. Current co-CEO Arne Schepker will become Babbel’s <crunchbase.com/organization/babbel> sole CEO. These changes come as Babbel hit €100 million in revenue for its 2018 financial year. While it’s unusual for U.S. founders to step down from their CEO role, especially as a company is hitting a new growth phase, Witt said: “Being the chairman of the board will put me in the best position to ensure the company’s future going forward. Being CEO and chairman has its pros and cons, and its conflicts of interest, which can make leaders less effective.
“Babbel reached a point where the chairman and CEO can’t be the same person anymore. I decided to stay as chairman because that’s the role where I can ensure that Babbel remains true to its mission. As the company grew, the workload became too much. CEOs like to overestimate themselves and I’m no exception. But I got to the point where I had to say: I can’t fill all of these roles anymore. Schepker added, “We have a clear strategy, and we plan to implement it even faster. The focus is on how we can create more value for our customers, our learners, by looking at how we can better guide them through their personal learning journey of a new language.”
Marriott CEO of the Year Example Marriott International CEO, Arne Sorenson was named CEO of the Year by Chief Executive magazine, even though he was diagnosed with and began treatment for stage 2 pancreatic cancer last May. On his watch, Marriott has exploded in value as revenue jumped from $12.7 to almost $21 billion over the past five years, while adjusted earnings per share were up 178 percent. Total shareholder return was 154 percent versus 60 percent for the S&P 500. Sorenson—who spends some 200-plus days on the road each year—is also one of the most high-profile and outspoken CEOs today, advocating for infrastructure investment, tax reform, LGBT rights, immigration, diversity, and simple decency. Sorenson is a role model for CEOs. Trained as a lawyer, he was personally recruited into the company in 1996 by Bill Marriott (1988 CEO of the Year). In 1998, he was named CFO and was named CEO in 2012—the first nonfamily member to hold the job. Sorenson credits his team: “It starts with a great team. If you face tough issues alone, you’re in a dangerous place. I am involved in the conversations daily, but I do not necessarily bring more expertise to our set of challenges and questions than a whole bunch of people at the table. I’m bred first to listen. Even when, ultimately, I have to make the decision, if I haven’t received input from team members who feel they can be transparent with me, I’m going to be harmed in the decision. The name of the game is to maintain and build on the trust that we have with each other and with our customers by telling them what we know, by being transparent.” Sorenson spoke highly of Bill Marriott: “I first met Bill in summer 1992. I was a 34-year-old partner in a law firm handling disputes. Early on, Bill Marriott would call me at home in the evening and say, ‘What happened today?’ His reaching out to me was what he did across the company—to reach out to everybody and get input and listen, to take soundings of all those folks and hear what they had to say. From him I learned that if you listen to what your team has to say, you get great substantive input and you build the team because everybody feels like, ‘Oh my opinion matters. He cares about what I think.’ We may pursue a decision or an approach that is different from what they suggested, but they still feel like they’ve had input.”
Sorenson continued: “All CEOs wrestle with our role as it continues to evolve and becomes more complex. On one level our business seems simple. We welcome people into our hotels every day and provide as good a service as we possibly can. But at the same time, we are opening a new hotel every 14 hours around the world, and we have 730,000 people who wear our name badge every day. What we aspire to is that every one of those associates deserves to be treated with dignity, to grow in their job, to take pride in their work and to deliver excellence for our guests and customers across 130 different countries.”
He concluded: “In many parts of our society, we are untrusting of each other. We are cynical about things. We think that our self-interest will be enhanced if we are driving conflict as opposed to bringing people together. We want to be an example of something different, where everybody is welcome to be an associate with us or to be a guest in our hotels. We want to be an example of genuine hospitality and create growth opportunities for folks.”
What I Extract from Exits
It’s ironic that we turn to Babbel for a good example of leading in unity by Witte and word and to ex lawyer Sorenson as an example of leading as non-family at Marriott.
Again, I see less excellence, more exit; less example, more exodus. In many would-be unions, the reason for being is not to benefit all of US in the USA but to bail out UAWs like Jones and Williams and then to Gamble on striking GM and clearing Barra. At McDonald’s, ex-CEO Easterbrook<news.mcdonalds.com/news-releases/news-release-details/mcdonalds-corporation-announces-leadership-transition> was not so much a Crook as a man who traded Easter for a consensual affair. At WeWork, Neumann was the trendy New Man, all about what works for Me. At
Under Armour, billionaire founder Kevin Plank had to walk the plank without armor in his underwear. Nike’s CEO Mark Parker resigned <www.cnbc.com/2019/10/22/nike-ceo-mark-parker-to-step-down-john-donahoe-to-replace-him-in-2020.html> from calling the shots at the Swoosh and was traded for ex-ebay CEO John Donahoe. The #MeToo movement forced many CEOs to resign, including CBS CEO Les Moonves<www.nbcnews.com/news/us-news/six-more-women-accuse-cbs-ceo-leslie-moonves-sexual-misconduct-n907926>, billionaire casino magnate Steve Wynn<www.nbcnews.com/storyline/sexual-misconduct/steve-wynn-steps-down-ceo-wynn-resorts-amid-misconduct-allegations-n845376>, and Intel’s Brian Krzanich<www.cnbc.com/2018/06/21/intel-ceo-brian-krzanich-to-step-down-bob-swan-to-step-in-as-interim-ceo.html>. We can only wish that Sean Spicer would resign from Dancing with the Stars (and Democrats wish that Spicer’s former boss Donald Trump would resign from the White House).
And now I must now exit before I’m forced to resign and lead an exodus.