Now that I have your attention. I should start this article with an apology to the millions of “real” CEO’s who do a fine job of steering their corporate ships and engage in good business practices around the world.
However, let’s look at what is going on in the last 12 months. 2019 was a record year for CEO’s leaving with a staggering 1,640 posts left so COVID cannot be blamed for everything as this was pre COVID. 2020 has started off no different in departure numbers but perhaps for some very different reasons. The list of scalps taken are from absolute giants in the corporate world. Here’s a few in the last 12 months: McDonalds, Groupon, Disney, Credit Suisse, IBM (going), L Brands (Victoria’s Secret and Bath & Body Works), Outdoor Voices, MasterCard, Fastly, Harley Davidson, IBM, T-mobile, LinkedIn, Reddit, CrossFit, Altria, Salesforce, Tinder, Hinge, OKCupid, Match, MedMen, The list goes on and on and probably a bit surprising to some as you may not have been aware of all of these changes.
Same author: I bet you haven’t heard of this. What is a SPAC in the investment world?
Typically, chief executives last just five years in their jobs. In 2018, more chief executives left because of lapses in ethical conduct than for the typical complaint of poor financial performance. 5 years only at the top of a corporate on average! I’ve had gym memberships last longer than that! Where is the longevity and the full commitment? Or is it better to bail at the top of the business cycle, take your parachute payment usually worth millions and let the next person deal with the downcycle?
The reasons for many of these departures are very mixed indeed. Some are for having affairs with staff members (McDonalds), one for stalking an ex-employee through a private investigator (Credit Suisse), some have admitted they just weren’t up to the job (Fastly), Some were bleeding money (Outdoor Voices), some for “personal reasons” (Tinder, Hinge, OKCupid and Match.com perhaps to work on her own relationship?), some for just “been at it” for an insane amount of time (L Brands 60 years).
And yet we still see the likes of WeCard hit the headlines from bad governance and in all likelihood a very rotten CEO and executives (yet to be proved). How is it still possible that a Company can have a fraud of 1.9 billion Euros occur today? How many times do we hear regulators in the last big collapse or fraud case say “we will change and reform” and “it will never happen again!” Just for it to happen again a few years later.
I have always believed there is a conflict of interest between an audit firm and companies that they conduct interim and annual reports and accounts for. The audit firm make a lot of money annually from those audits so naturally do not wish to lose that income. Yet they are supposedly bound to fulfill an obligation to investors, suppliers, employees etc of a Company that rely on those reports to make judgment calls on so many areas. Do I wish to invest in that Company as a shareholder? Do I wish to be linked to this Company as an employee or supplier of goods and services? The list goes on as to who relies on those documents and why. The big four audit firms in their own right, do seem to be in the headlines far too often, guilty of not fulfilling their duties.
By now it should be clear that any listed Company should not have the control of choosing its own audit firm but the exchange that the Company is listed on, chooses the audit firm and pays for it. That service is then paid for by the Company back to the exchange removing any fear of asking “too many serious questions” by the audit firm as they are getting paid anyway and it still remains a mandatory function taken out of the hands of the Company CEO, CFO. The only problem is price as it has always been as the Company does ultimately have to pay for the audit and they wouldn’t be in a position to discuss that fee.
Germany are now reeling from the fallout of the WeCard collapse story and it has to be said it is highly embarrassing. The CEO I think we can all agree will be doing some time in a concrete box along with many other executives allowed out for 1 hours exercise a day.
I recently heard in a documentary, Najib who is the ex-Prime Minister of Malaysia embroiled in the lawsuit over the 1MDB fraud of billions in USD say. “I sign lot’s of paperwork. How can I be expected to know what everything is and what everyone is doing?” Apart from the fact it is your job to know. I found that a staggering comment but not all that surprising and heard a little bit too regularly as a defense at the top. And naturally should never be allowed as the buck stops with the CEO. That’s what he gets paid for. To know everything.
Picking companies to invest in doesn’t just involve looking at the CEO and executives. It is their governance, their attitude towards environmental issues, their compliance to work correctly and ethically whilst still earning a profit that counts. The days of the corporate capitalist train of thought that began in the 60’s/70’s, where all that mattered was profit only, does not stand true today. The world has changed and with it what is expected of a CEO and his team. If you take that function and the salaries and bonus that go with it, you don’t get to call foul at a later date if you do something wrong.
The reasons for departures do vary. Some analysts talk about a management restructuring, some say it’s because of a failure to meet the company’s goals, others definitely have stepped down because of sexual harassment scandals or because of a failure to address sexual misconduct within their companies. But it cannot be necessarily a coincidence that CEOs are departing at an increasing rate. The trend calls for an analysis of what is going on across all of the various reasons CEO’s are removed. Accountability should be first and foremost.
As a wealth manager it is the largest part of my function. To study companies and understand from the data available who is who, and who is doing what. Sounds simple enough doesn’t it. Thankfully we have a massive team of global experts who can pull on that source information and put it all together along with myself. Creating growth through a portfolio of stocks and corporate bonds will depend on access to this kind of information if you wish to be successful. We have it.
If you are looking for wealth management/portfolio management for savings structures, retirement planning, higher educational fee planning, trusts, inheritance tax solutions, please get in touch with Vietnam’s leading wealth manager. Lawrence.young@holbornasets.com