The Significance of a CEO’s Role in Major Corporations

Recent months have seen leadership transitions at major corporations such as Boeing, Nike, and Starbucks, prompting questions about the extent of a chief executive’s influence on the effective operation of such large enterprises. According to Alan Lafley, who served as CEO of the global consumer goods conglomerate Procter & Gamble from 2000 to 2010 and again from 2013 to 2015, “There’s only one cat who’s on the hot seat.” Procter & Gamble, which offers products ranging from Pampers nappies to Head & Shoulders shampoo and Fairy washing up liquid, serves over five billion customers globally and employs a workforce exceeding 107,000 individuals. Mr. Lafley draws a parallel between leading a company of such immense scale and managing an English Premier League football team. He notes that the position carries an equivalent risk of dismissal if performance outcomes do not meet expectations. He states, “With the football players, if they have a bad season, they’re not gone. Instead it is the coach or manager that’s going to go.” In August, coffee behemoth Starbucks disclosed a CEO change, attributing the decision to declining sales influenced by elements such as an intricate menu, intense competition in China, and boycotts related to the conflict in the Middle East. The expectation is that the incoming leader, Brian Niccol, will be able to revitalize the company’s performance. To entice him from his successful tenure at the US restaurant chain Chipotle, Starbucks is providing him with over $100m (£79m) in his initial year, along with access to a private jet for his 1,000-mile commute from his California residence to the company’s headquarters in Seattle, Washington state. Executive coach Alisa Cohn comments, “It’s pretty obvious that there’s a big hope for him and his ability to turn that company around,” clarifying that a company’s board of directors determines high-level compensation packages, which signify their anticipations for the appointed CEO. The announcement of Mr. Niccol’s appointment was met favorably by investors, resulting in a 24.5% increase in Starbucks’ share price on that day. Concurrently, Chipotle’s shares experienced a 7.5% decline. Mr. Niccol is currently proceeding with initiatives aimed at streamlining Starbucks’ menu. Ms. Cohn further states, “CEOs are the ones who are setting the strategy for the company. They’re the ones setting the culture for the company, and, truthfully, the buck stops with them in terms of their accountability.” Marcia Kilgore, a Canadian entrepreneur known for skincare brands Soap & Glory and Beauty Pie, as well as the footwear company Fitflop, asserts that the CEO position is intricate, challenging, and essential for a company’s prosperity. She elaborates, “You need to have somebody who can really look at the different streams of work that need to be done, and make those organised and prioritised.” “And someone who can make sure that the different teams in the company are working together harmoniously, and ensuring that time is not wasted, money is not wasted, and energy is not wasted on things that are not going to move the dial for the company.” Mr. Lafley assumed leadership of P&G in 2000 due to a predecessor’s inability to make appropriate decisions and guide teams effectively. His predecessor, Durk Jager, resigned following the unsuccessful outcome of a significant global restructuring initiative he spearheaded. This effort, which involved eliminating 15,000 jobs and closing 10 factories, was intended to boost profits but instead resulted in recurring profit warnings and a sharp decline in share price. Mr. Lafley states that the CEO role is not about personal execution of all tasks, but rather about “enabling and empowering everybody in the organisation” to accomplish necessary work. He recalls, “We had 100,000 people looking to the new CEO to tell them two things – ‘what happened?’, and ‘what are we going to do next?’.” He clarifies that he opted to redirect the company’s focus towards customer service and product innovation, assuring employees, “I have confidence that we’re all going to get us out of where we are and back on track.” Mr. Lafley further notes that the clear communication of his strategies to employees was so “hugely important” that, prior to the advent of Zoom, he traveled globally to engage with staff face-to-face. Inspiration and communication appear to be central to the methodology of Nike’s new CEO, Elliott Hill. Upon assuming the position in September, he conveyed to staff via writing his “great confidence in his team and our future together,” notwithstanding a period of declining sales. Ms. Cohn, whose experience includes working with firms such as Google, Etsy, and Johnson & Johnson, asserts that regardless of a new CEO’s strategies, self-assurance is crucial for achieving any success. She states, “The most important quality that you need to be the CEO is knowing that you will be able to be the CEO. There is a sense of confidence, and healthy ego that you need to bring to the table.” She continues, “The second thing you need to bring to the table is an ability to adapt. You’ve got to be able to assess the situation, make some important decisions, and then adapt them as you go.” She believes this quality cannot always be imparted, which she attributes to why numerous individuals remain “stuck” in subordinate roles within organizations. Ms. Cohn further advises, “You need to develop your own sort of internal state to know that you can handle the pressure, the difficulty, the spotlight.” This intense pressure is a contributing factor to why leading CEOs frequently receive substantial compensation packages. Among the S&P 500 group of the largest US companies last year, Hock Tan of Broadcom was the highest earner with $162m, succeeded by Nikesh Arora with $151m at cybersecurity company Palo Alto Networks, and Stephen Schwarzman with $120m at investment firm Blackstone. Executive consultants Equilar reported that the average compensation for an S&P500 CEO last year reached a record $16.3m. This figure indicates that they earn 196 times the amount of the average worker at their respective companies, leading critics to argue that CEOs are not worth significantly more than their employees. Sarah Anderson of the Washington-based progressive think tank the Institute for Policy Studies asserts, “This is based on the foolish notion that the person in the corner office is somehow almost single-handedly responsible for corporate value.” She believes this issue is escalating and becoming a global phenomenon, adding, “I think runaway CEO pay is bad for our economy, bad for democracy and bad for business.” Mr. Lafley concurs that the compensation disparity between staff and CEOs is “too high,” yet he posits that companies must compete to secure top talent. He suggests that the solution involves providing CEOs with “a rather modest basic salary, and then everything else is incentive.” He concludes, “In the end, it’s sort of like a coach. If you’re not motivating people, and you’re not enabling them to do what you’re asking them to do, then you’re not doing the job.” Copyright 2024 BBC. All rights reserved. The BBC disclaims responsibility for the content of external sites. 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