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Changing Impact of CEOs on Shareholders

December 13, 2016

The CEO is one of the most visible, influential, and important leadership figures in a company. Just as the role of general counsels is evolving, the impact of CEOs on businesses and shareholders is also undergoing tremendous changes. This is especially true as globalized operations become more prevalent, and newer issues such as ESG investing and stewardship principles get integrated into company policies. 

Market analysts have identified several key factors that highlight the changing role of CEOs and the different impact they have on stakeholders. In the past, the pool of CEOs tended to be somewhat homogenous, both in terms of demographic background as well as experience. Recent trends indicate a more diverse generation of new CEOs, as well as broader approaches to company leadership. The following are some highlights of how the CEO role is changing:

General Factors Related to CEO Roles and Performance

Age and Experience
CEOs are now viewed as a powerful impetus in shaping a company’s culture. As such, a CEO’s personal background, demographics, and even personal life can affect the way they lead, as well as the way they are accepted by a company. 

For instance, a recent study suggests that younger, newer CEOs may steer a company in a more entrepreneurial direction, taking more risks and making more proactive decisions. In comparison, a CEO who has been entrenched in the company for a longer time may be more resistant to change.

Age and experience are definitely something to consider as more Generation Xers (born 1965 to 1980) and Millennials (born after 1980) step up to serve as CEOs. On one hand, this can lend to greater longevity and longer stints as CEO as the business leaders start earlier in their life journey. On the other hand, the younger generation of professionals are changing jobs and positions more frequently than any other generation. While there is the risk that a younger CEO may not have the requisite experience like a more seasoned business leader, many younger CEOs arrive at their station through accelerated promotion. 

Compensation 

The general public tends to view the majority of CEOs as being overcompensated. One of the central issues with these perceptions is that it can be difficult to assess performance and translate performance indexes into compensation. Thus, the ability to identify and communicate successes is important for CEOs. If they are unable to articulate what successful performance looks like, it will then also become difficult to assess salary in relation to performance. 

Also, shareholder perceptions of CEO compensation are often tied in with instances of fraud and unjust enrichment, as in the recent case involving Tesla CEO Elon Musk

Connections Between Succession Patterns and CEO Strategies

A research paper titled “Temporal Change Patterns of Entrepreneurial Orientation: A Longitudinal Investigation of CEO Successions” makes important links between succession and CEO strategies. The study indicates that CEOs hired externally tend to introduce more drastic changes in strategy than those hired internally. This is apparently related to the fact that externally hired CEOs tend to bring more diverse skills sets, experiences, and networks along with them. 

Thus, boards and shareholders may often make a succession decision based on the direction in which they see the company going. For instance, boards can select a CEO from outside the company if they wish to produce more proactive changes; if they are seeking stability, they might opt for a business leader who has been with the company for a long time. 

CEO Emphasis on Technology

Besides the general factors mentioned above, by far the greatest change with regards to CEO activity is a definite increase in focus on technology and innovation. PwC’s 19th Annual Global CEO Survey and a recent report by Korn Ferry both indicate that CEOs are turning their attention and priorities more and more to technology. 

For instance, according to PwC’s survey, more than half of CEOs considered R&D/innovation technology as creating the greatest returns in terms of shareholder engagement. The Korn Ferry report states that 63 percent of CEOs believe that technology will become their firm’s greatest source of competitive advantage in the future.

Investment in innovation technology can be seen as a natural outcome and simply utilizing the resources available to management. However, there is a danger of technology making people “irrelevant” due to robotization of the workforce. An overemphasis on technology to the detriment of people can negatively affect shareholder confidence in CEOs and leadership. Rather than seeing technology as a replacement for people, a better approach would be to seek people whose talent lies in understanding and managing technology for the company’s success. 

Additional Concerns and Issues

Lastly, along with a greater reliance on technology for successful day-to-day operations comes a proliferation of new legal issues. For instance, CEOs and business leaders must constantly keep apace with issues like:

  • Cybersecurity
  • Storage of data and privileged information
  • Digital dissemination of important investing and securities information
  • An increasingly confusing global patchwork of laws regulating technology and investment

In particular, over-regulation will be seen as a major concern for CEOs, especially with regards to global technology issues. According to the PwC study, 42 percent of CEOs in the survey cite unclear/inconsistent regulations as a barrier to effective impact on customer expectations. Increasingly complex legal systems around the world are making it difficult for CEOs and multinationals to comply with the rules in their countries of operation. 

Thus the overall role, influence, and development of CEOs today is evolving at a rapid pace. The CEOs of the future will likely be well-versed in a broad range of skills and may be more mobile in their careers than their predecessors. As their role and impact changes, they will also be facing different challenges as well. 

If you have any questions, concerns, or disputes regarding CEO roles and performance, contact us today at Kessler Topaz. Through our global client work, our team has developed a deep understanding of foreign laws, as well as important relationships with business leaders in over many countries. We are committed to remaining at the forefront of important developments that can affect shareholders around the world.