USA: AT THE MERCY OF THE MARKETS AND THE AXEMAN.

USA: AT THE MERCY OF THE MARKETS AND THE AXEMAN. - In the rough, tough world of US business, you might expect the likes of David Herro, the slayer of Maurice Saatchi, to cut a wide swathe through the ranks of chief executives deemed to have failed. In th

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Last Updated: 31 Aug 2010

In the rough, tough world of US business, you might expect the likes of David Herro, the slayer of Maurice Saatchi, to cut a wide swathe through the ranks of chief executives deemed to have failed. In theory, the cutting should also be easier, since US convention insists on a large non-executive contingent on major corporate boards. The executive cluster is too small to rally round a beleaguered chief. Inevitably, the axeman cometh: but in practice he takes an unconscionably long time to come.

The changes at the top of General Motors, IBM, American Express and Eastman Kodak only followed several years of poor results. A glance at the IBM board, which prevaricated over the expulsion of John F.Akers, explains these conspicuous delays. Out of 15 non-executives, four were academics and two lawyers, eight came from wholly unrelated industries; only one, the former chairman, knew the business. Half-a-dozen were retirees and many, no doubt, were the chairman's close friends.

In this quite typical, cosy world, the defenders of the CEO are also defending the system - which, for the businessmen, also provides top man security in their own companies. In all the cases mentioned above, pressure built up outside the boardroom, not within. For instance, the California Public Employees' Retirement System has started rocking several boats by publishing a list of poor corporate performers. It's an early warning signal, but boards still try to ignore the warning.

When IBM made this roll of dishonour, a spokesman reacted by saying that 'Akers has the board's full support.' Nine months later, he was gone. The same pattern of full, foolish support was shown at GM, where Roger B. Smith's 10-year tenure drove the motor giant close to crisis. Smith's failure was only recognised after his retirement; his lacklustre successor, Robert C Stempel, wasn't so lucky.

The decisive factor isn't the company's or the CEO's intrinsic performance, or even its finances, but the movement of the shares. When stock markets are stronger, so is the position of CEOs. When Wall Street weakens, the weaker companies suffer the greatest erosion of stock market value, which alerts corporate gadflies such as the Californians (and Herro).

But if awful performance triggers only slow expulsions, it follows that mere mediocrity hardly ever suffers. In truth, the US system (in the excessive rewards paid to CEOs as well as their security of tenure) still bears all too many marks of self-perpetuating oligarchy.

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