Where are all the CEOs?

Portfolio Manager, Mohandeep Singh, recently sat down with Madison Reidy to discuss the changing faces of leadership at some of our largest listed companies. Click here to watch, or continue reading.

Leading any business is no easy gig. Leading a listed company comes with the extra pressure of being in the public eye and having your performance scrutinised more rigorously by analysts, investors, and the media.

Strong management is a key pillar of any successful investment. A good business can be made great by the right leader, but it can just as easily be impacted by a poor leader.

There have been plenty of examples of both in recent years. Chief Executives set the tone for culture, strategy, and capital allocation – these are some of the make-or-break factors in a business.

In the last few months, there has been a constant stream of announcements regarding chief executive changes at many of our largest listed companies.

While some of these changes have been due to natural attrition, or executives electing to move to other roles, there have also been a few sudden departures due to poor company performance.

Changes in leadership are nothing new, but it does feel like we have had more than our fair share of change on the NZX 50 in recent years.

Since Covid (2020), over half of companies on the NZX 50 have had a change in their CEO. This leaves many listed companies with relatively new top executives. Tenure certainly isn’t the be all and end all, but there is always something to be said for experience and time in the seat.

It’s important to acknowledge that while the role of CEO is an important one, it is only one piece of the puzzle when it comes to the leadership of a company.

Other high-ranking executives can have significant influence on the performance of the overall business, particularly in large organisations.

Similarly, the Board of directors has a key role to play given they are in place to be the voice of shareholders, as well as a sounding board for management.

Ultimately, it is up to executive teams to set the strategy (including capital allocation) of a business, and it is up to the board to ratify the strategy – and ultimately hold executives to account.

Importantly, there is no perfect rule of thumb for finding the perfect executive for a company. A range of factors need to be considered, and history suggests that sometimes what looks good on paper, may not work out in practice.

In the end, it comes down to ‘horses for courses’ and it’s up to the Board of Directors to appoint the right skill set for what their business ultimately needs to succeed.

A business performing well generally tends to focus on internal promotion to maintain the ‘secret sauce’ which has been working well for a company – this might be in the form of promoting an internal senior executive to the role of Chief Executive.

On the contrary, when a business is performing poorly, the focus tends to be on ‘clearing the decks’ and bringing in a fresh set of eyes and a new perspective. This usually comes in the form of someone from a competing business, or an offshore based candidate – admittedly the latter has had mixed success for NZ companies.

For us, the most important factors still remain:

1. a track record of success,
2. strong understanding of the industry or business they are operating in, and
3. incentive schemes that are aligned to shareholder outcomes.

You can also read this article on the New Zealand Herald.

Market Insights enewsletter

Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.

Subscribe Now