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It's lonely at the top, alright. And staying there is ever lonelier. For all the rewards, running a big company has long been something of a solitary endeavor. No matter how well their underlings perform, America's chief executive officers usually receive the bulk of the credit and the blame for the states of their companies. Most CEOs gladly accept that bargain -- and the fat paycheck that comes with it. But increasingly, they are finding it harder to stick around once they arrive at the top.
Powerful political and market forces have made the lives of corporate chieftains ever tougher. Post-Enron market reforms, led by the Sarbanes-Oxley Act of 2002, have immersed CEOs in tiresome legal and regulatory issues. Boards of directors, chastened by turn-of-the-century corporate scandals, are asserting their independence, following accusations that they were too cozy with the chief executives who report to them. Growing ranks of activist investors are challenging everything from executive compensation to environmental and labor policies. And an avalanche of money into hedge funds and private equity is intensifying the market's already relentless focus on short-term financial performance.
No wonder many chief executives are running scared.
"I see a lot of nervous CEOs," says Peter Crist, a 30-year veteran executive recruiter who runs boutique search firm Crist Associates. "You've got activists, the private equity people, hedge funds, just wreaking havoc out there. Every CEO I'm with talks about someone shorting him that day. That's not operating a business. That just causes anxiety."
Many are heading for the exits, voluntarily or not. Last year more CEOs left their jobs -- 1,347 through November -- than in any previous year, says outplacement consulting firm Challenger, Gray & Christmas. About half of the departures were retirements; the other half was made up of chief executives who either stepped down or were fired. (There are about 10,000 public companies in the U.S.) Challenger Gray chief John Challenger attributes the record turnover to CEO frustration and boards of directors that are willing to pull the plug on underperforming bosses much more quickly.
"These pressures may only increase in 2007," says Challenger, citing new Securities and Exchange Commission regulations requiring greater disclosure of CEO compensation, as well as plans by activist shareholders to turn up the heat on corporate America during the coming proxy season.
Indeed, scrutiny from regulators is far from subsiding. According to published reports, the SEC and the U.S. Department of Justice are investigating more than 150 companies in connection with potential backdating of stock option grants. As of the end of last year, 19 CEOs had stepped down following scrutiny of allegedly backdated grants.
Consulting firm Booz Allen Hamilton conducts its own research into CEO turnover and reports that roughly one in six CEOs leaves his or her job every year -- up from one in 11 just eight years ago. "We think this is going to be the new norm," says Paul Kocourek, a senior vice president at Booz Allen.
If merely keeping a job is a notable achievement for today's CEOs, outperforming peers is an even bigger accomplishment. And continuing to do so at an elite level year after year is a feat that none but the most talented chiefs can pull off.
This year marks the fifth time Institutional Investor magazine has identified America's most outstanding chief executives by asking the country's biggest investors to evaluate them. It has been a trying five years. CEOs have had to contend with the bursting of the great 1990s stock bubble, the tragedy of 9/11, a recession, a deep bear market and the seemingly endless parade of corporate frauds that gave birth to today's regulatory and shareholder activism. A select few executives have not only shepherded their companies through these storms but have so excelled that investors have recognized them as the best in the country over and over. Just one, John Chambers, the 12-year veteran CEO of Cisco Systems, has been voted No. 1 in his industry sector for five years running. A handful of others, including George David of United Technologies Corp., Allergan's David Pyott and James O'Connor of Republic Services, boast three or four appearances at No. 1 in our survey to go with long tenures atop their companies. (In all, more than 1,000 portfolio managers and analysts at pension systems, endowments, foundations and money management firms with a combined $6.9 trillion in U.S. equity assets under management responded to this year's survey
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