In one week the number of black CEOs of the nation’s top publicly-traded companies fell by two. Merill Lynch CEO Stanley O’Neal was ousted for making a bad bet on mortgage-backed securities. In an unrelated act, Richard Parsons announced he was retiring as CEO of Time Warner after putting in place an orderly succession plan.
Often CEOs keep their jobs only as long as their strengths match current corporate needs. “The business strategy challenges that Time Warner faces now are very different from what it faced when Dick Parsons became CEO. That is why he will be stepping down,” says Bernard E. Anderson, a member of the be Board of Economists. In 2001, Time Warner’s difficult merger with AOL made Parsons, the company’s co-COO at the time, the man of the hour. “His contacts, and background as a lawyer and businessman was a combination thought helpful in successfully negotiating the integration of AOL and Time Warner. He did that, but was unable to increase the share price. That’s the next challenge.”
In 2002, Merrill Lynch wanted to increase profits, and Stanley O’Neal was a superstar for thinking of new ways of expanding the business services of the financial services company. Merrill Lynch elevated O’Neal, and he used the company’s strong capital base to make it the No. 1 provider of collateralized debt obligation instruments. In seven years, Merrill captured 5% to 45% of the structured investment vehicle (SIV) market share, which includes CDOs. Merrill Lynch’s profits and share price shot up dramatically. But when the 2007 subprime mortgage meltdown cut demand for SIVs, those products’ earnings shrank, and Merrill Lynch had to write down those assets’ values. This resulted in a staggering $8.4 billion write-off for the financial services giant. “It matters not what color you are. When you preside over that kind of asset devaluation you’re going to lose your job. “There was no way under those circumstances that Stan O’Neal could have survived,” Anderson says. O’Neal’s ouster from Merrill Lynch was coupled with an alleged secret meeting with Wachovia to discuss a possible merger that board members were never told about.
Because only eight African Americans were at the helm of the top 1,000 publicly traded companies in 2007, “any reduction of rank will be viewed as a watershed event,” says Carl Brooks, president and CEO of the Alexandria, Virginia-based Executive Leadership Council. The current black CEO
forwp-incontent-custom-banner ampforwp-incontent-ad2">The rise of black executives has not been reversed, says Thomas Boston, Ph.D., an economics professor at the Georgia Institute of Technology and a member of the be Board of Economists. “I don’t think it’s a setback,” he says. “The corporate CEO position is becoming more of a merry-go-round for everyone, black or white, because of the tough, competitive environment they must negotiate. One bad strategic move can have enormous adverse consequences on the health of a corporation, and there is much less patience with anything short of spectacular success. If there is a racial double standard, it might be that black CEOs do not have the luxury of pursuing a corporate strategy that pays long-run dividends but requires short-run trade-offs in terms of corporate profitability. They only have the opportunity to win.”
Black advancement may, however, suffer a brief pause, says Gerald D. Jaynes, Ph.D., professor of economics and African American studies at Yale University. “Any African American who has been around will understand that we don’t
get the same level of opportunities to fail as white Americans do,” says Jaynes, another be Economist. For the individuals who are resigning under pressure, there is always going to be a case for it not simply being looked at as a CEO whose time is up, but a black CEO whose time is up. Whatever negative things anyone has to say about that are going to rub off a little bit.”CEOs have been changing jobs more frequently of late. In addition to the departure of Parsons and O’Neal, Citigroup chairman and CEO Charles Prince also stepped down amid the company’s billion-dollar losses from investing in bad debt. Last October saw 216 CEO shuffles, while CFO and all other C-level management changes were up 8% from October 2006, according to Liberum Research, an independent investment-research firm based in New York City and part of The Wall Street Transcript, which focuses on management changes and how it affects the investor. Citing research conducted by executive search firm Spencer Stuart, Brooks says, “In 2005, under 60% of S&P 500 CEOs had been in their position less than six years.” Only 12% had served more than a decade, 20% had been CEO for six to 10 years, and 21% had been in their posts for one year or less. Boston blames the high CEO turnover rate on globalization. “In recent years, this has forced CEOs of leading corporations to make drastic cuts in costs and pursue risky business strategies to maintain above-average profit margins,” Boston says. “Black CEOs have given in to this temptation just as white CEOs have. It is a high-stakes game with big rewards for winners and big penalties for losers. E. Stanley O’Neal and former Fannie Mae chairman and CEO Franklin Raines gambled and lost.”
Anderson attributes the turnover to a post-Enron environment, where the Sarbanes-Oxley Act of 2002 requires a new or enhanced level of CEO accountability to corporate shareholders.
Despite the challenges, Brooks believes the future remains bright for up-and-coming African American mid-level managers who are gaining the experiences and competencies needed to move into, and be successful in, senior corporate positions.”
But they must be aggressive, says Boston. “Black CEOs cannot survive if they pursue a cautious strategy. They have to pursue bold strategies, and they have to be fortunate enough to be successful at them.”
CEO Changes
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October 2007 C-Level Breakdowns by Status |
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|
% Moving |
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Total Moving |
Reason for Move |
|
21% |
45 |
Internal Moves |
|
26% |
56 |
New hires from outside the firm |
|
1% |
2 |
Left firms without clear explanation |
|
25% |
55 |
Promoted within the firm |
|
26% |
57 |
Resigned or retired from the firm |
|
0% |
1 |
Terminated |
source: liberum research