Blood in the Boardroom

By Kate Kelly

Executives at Lucent Technologies, the New Jersey telecom-equipment maker, couldn't help noticing this year that CEO Richard McGinn had morphed from an outgoing, hands-on boss who ate lunch in the cafeteria to a withdrawn figure bunkered in his office. Perhaps retreat was in order. After three otherwise successful years at the helm, McGinn had committed a series of screw-ups. Among them: missing out on optical-equipment investments that Lucent's competitors later cleaned up on and avoiding layoffs in spite of declining sales. Two weeks ago, he delivered really bad news: the current quarter's revenue would be 7% lower than last year's. It would be the fourth consecutive quarter his company had underperformed--and the last for McGinn. The next day, last Sunday, Lucent's board sacked him.

Sound grim? Maybe, but in corporate boardrooms nowadays, patience is on back order. Firing your CEO used to be the last resort, but more and more it seems like the first. McGinn's departure made him just another casualty in the ranks of ceos ousted in the past year--including Gillette's Michael Hawley (also canned last week), British Airways' Robert Ayling and Xerox's Rick Thoman. And the list is growing. The number of CEO departures went from just 46 last September to 103 this September, according to a study by the outplacement firm Challenger, Gray & Christmas. The number this fall is expected to be double the October 1999 figure, 60.

The job span of top executives is shrinking. In 1980 a CEO's average tenure was six to seven years; these days it is more like four, reports the headhunting firm Spencer Stuart.

The casualty list is growing because the role of CEO is getting ever more difficult. Companies are larger, and technology is accelerating product cycles, so any mistake is likely to be huge. "The situation has become much more complex," says management consultant Ram Charan. "The speed of change is faster. Wall Street is demanding more and reacting quickly when things don't go right. That's creating tremendous pressure."

Once, the CEO had to run the business and watch the bottom line. Now he or she has to be a strategic visionary, an operations hawk and the chief salesman--meanwhile keeping Wall Street investors happy. "You've got to get in front of Fidelity one day and Janus the next and still keep the shop running at home," says management consultant Gary Stibel. As the past year's string of departures reveals, many ceos aren't up to the task.

But today's directors think they should be. For years boards allowed underperforming ceos to bumble onward; after all, many board members are CEOs too. But increasing pressure has forced them to oil the trapdoor. Boards, just like stockholders, don't want to be surprised. ceos such as McGinn and Procter & Gamble's Durk Jager, who was forced out in June, were sunk by overly rosy earnings projections. In both cases, the chief executive predicted better earnings than he could deliver--twice in Jager's case, three times in McGinn's. At Gillette, director Warren Buffett, famous for his long-term approach, couldn't wait forever for the stock to come around. So he moved on the CEO.

CEOs are also paying with their job for any big strategic failure. The purchase of a dog called the Learning Co. bit Mattel CEO Jill Barad in the career; she resigned under duress in February. In her farewell speech, Barad described the acquisition's effects as "devastating" to her toy company's "overall performance."

Corner offices don't stay vacant for long; the board organizes a search committee even before the fired CEO departs with a large payout. Lucent is looking for a boss with a technical background and experience in rationalizing businesses. The pay is great, the perks are plentiful, and you get your very own jet. Just don't have the seat pillows monogrammed.