Heads roll only if CEOs can be blamed for bad decisions

By Jo Whitehead *

(exechange) — June 1, 2020 — At the height of the Covid-19 pandemic, share prices have collapsed everywhere you look.

Does this mean that CEOs will get fired for poor share price performance?

Probably not, if history is a guide.

Our analysis suggests that poor share price performance will only lead to a CEO being pushed out if he or she is blamed for strategic decisions tied to the decline.

CEOs of companies where share price collapses for reasons that appear out of the control of the top management tend to survive with their reputations intact.

For example, the German utilities RWE and EON both suffered a massive decline in share price, but this was attributed largely to factors outside of their control, including the German government’s fondness for solar and wind power subsidies and laws that forced the closure of extremely profitable nuclear plants after the Fukushima disaster.

Heads roll only if a downturn exposes a vulnerability that can be traced back to senior decisions.

For example, Royal Mail boss Rico Back left precipitously after concerns about his strategy and a steady decline in share price — and despite a recent uptick that started in early April.

* The writer is a director of the Ashridge Strategic Management Centre at Hult International Business School and is currently researching why companies and CEOs stumble. Jo.whitehead@ashridge.hult.edu.

Editor’s note: This is a guest post.