How Much Leeway To Give The CEO

By DirectorCorps

April 29, 2020 All Industries Activism

In an upcoming May vote, the activist investment firm Sherborne Investors Management sought to encourage London-based Barclays shareholders to deny chief executive Jes Staley another term at the bank. Sherborne had pushed for structural changes for over two years, leading to the effort to oust Staley.

A month before the vote, however, Sherborne announced it would relinquish the fight “with great reluctance,” due to the fallout of Covid-19.

It’s a battle that many investors and boards are dealing with. How much pressure can they apply to the CEO, when the chief executive is reacting to the chaos surrounding the coronavirus? For some, it’s forcing quick changes; in other cases, it’s highlighting which leader the company is willing to rally behind.

SAP SE made a quick move to adjust its CEO structure during this unusual time. After former CEO Bill McDermott stepped down last year, the software developer named co-CEOs to fill the role. That changed in April, when the company announced that Jennifer Morgan would step down, leaving Christian Klein as the sole head.

“A dual leadership model has many benefits and its time, but the current environment requires companies to take swift, determined action which is best supported by a very clear leadership structure,” according to the statement announcing Morgan’s departure.

Cigarette maker Altria Group made a similar move, as embattled CEO Howard Willard stepped down weeks after being diagnosed with the coronavirus. Investors had pushed for his departure, due to poor investments made in e-cigarettes.

It’s easy for the firm to lean on the person in this time of crisis when there’s a strong leader in place — even if he or she isn’t CEO anymore. Take The Walt Disney Co. and Bob Iger, who stepped down as its long-time CEO in late February to give way to Bob Chapek. As the crisis led Disney resorts and theme parks to close across the world, “Mr. Iger smoothly reasserted control” as chairman, according to The New York Times.

“It’s a matter of great good fortune that he didn’t just leave,” Richard Plepler, the former HBO head, told the NYT. “This is a moment where people first and foremost are looking to an example of leadership that has proved itself over an extended period of time — and Bob personifies that.”

It’s not unusual for companies to avoid major turnover when it’s dealing with bigger issues. As the world moves towards reopening again, though, boards will have to figure out whether the CEO remains the person that they want to rally behind.