Wednesday, April 23, 2014

Staying in the Job

The hottest news at the moment is from the world of sport. After less than one full calendar year on the job, Mr David Moyes was sacked as manager of Manchester United.

The reason for Mr Moyes’s sacking was simple – under his leadership, Manchester United hit all-time lows. The facts were simply against the man. Manchester United which had been used to being either number one or two in the Premier League, suddenly fell to number seven. They faced back-to-back defeats at home within a period of four days and they were knocked out of the 2014 FA cup by a lesser club (Swansea). In short – the team screwed up and Mr Moyes was held responsible.

There are arguments that his sacking after ten-months was harsh. It was, as they say, just a season and history has shown that leaders can make come backs from disasters. One only has to think of former New Zealand All Black Coach, Graham Hendry who led the All Blacks to their worst ever World Cup Performance in 2007 (knocked out by fourth place finishers before the semi-finals) and then retained his job long enough to lead them to World Cup glory in 2011. There’s no reason to suspect that Mr Moyes’s could not have done something similar if given enough time.

However, Mr Moyes’s sacking reflects one major reality of the modern world – a low tolerance for failure. In the corporate world, CEO’s live and die by their share price. In the world of sports teams, managers and captains are assessed by the team’s performance. Mr Monyes’s was sacked after 10-months on the job because the team slumped. By contrast, his predecessor stayed on the job for 20-years because he was exceedingly successful.

The reason for this fact lies in a certain logic – this is the era of high salaries. Top performers from business to sport are paid more money than ever before. The ranks of the super wealthy has swelled to proportions that have been seen before.

However, there is a slight snag to this. People who pay a lot of money also expect a lot in return. People are no longer people but assets that organisations and stakeholders invest in. Shareholders will only tolerate a CEO earning millions if the said CEO makes them many more times their investment. In sport, people expect a winner on a regular basis.

There are exceptions. Jeff Imellt, the CEO of General Electric presided over several periods of low stock prices and the loss of GE’s AAA credit rating. How did he do it? The answer was clear communication and the setting of expectations.  Like Mr Moyes’, Mr Immelt had a legendary predecessor. However, Mr Immelt was able to communicate the things that were in his control – September 11, 2001 was not one of them and the shareholders allowed him to deal with the crisis.

More importantly, Mr Immelt was quick to make it be seen that he was doing something about problems. One only has to recall the way Mr Immelt went to Mr Buffet and got to him to invest in the company. The new was good for GE stock price and that in turn helped Mr Immelt stay in his job.

In the modern world, past glories are quickly forgotten. What counts are results in the present and if you can’t get results then one needs to be seen to be doing something about it. It’s a fact that anyone demanding high pay needs to be consider.