Big companies today are under the control of a Silent Generation of CEOs, reared under crisis conditions and rewarded more for quiet perseverance than boldness. As a result, even four years into an economic recovery and with global stock markets at new highs, big U.S. companies are in danger of taking too few chances to grow.
The Silent Generation is the name given to Americans born between 1925 and 1944, brought up amid the Great Depression and World War II to be sober, conventional and risk-averse.
While they have personally thrived during ebullient economic times throughout their careers and are quite wealthy and successful as a group, today’s CEOs largely assumed their leadership roles immediately before, during or in the wake of wrenching financial crisis, recession and the anxious repair process that has followed.
Defensive operations
This worry-shrouded environment has conditioned corporate decision makers to operate their businesses defensively, and can help account for executives’ miserly spending on growth-directed capital projects and the unusual lack of merger-and-acquisition activity despite stock prices being at record highs.
To a greater degree than in any prior bull market, big companies now are content to keep lots of cash on hand, except when sending it back to investors in the form of rising dividends and stock buybacks – which end up shrinking a company’s financial profile while supporting measured per-share earnings and goosing CEO compensation.
According to a new report on CEO succession trends by The Conference Board, more than 60% of CEOs of Standard & Poor’s 500 index member companies assumed their roles since 2007, just ahead of the housing-and-credit meltdown.
That means most leaders have spent their time navigating around the implosion of financial markets, the deepest recession in 75 years and the constant threat of a European debt collapse or U.S. fiscal seize-up. The typical big-company CEO today has held the job for around six years, and the average tenure of a CEO upon his or her departure has hovered near seven or eight years since 2005. So the majority of the average CEO’s run as boss has been consumed more by avoiding risks than seeking out new opportunities.
At this point in an economic and financial-market cycle, many such new opportunities would include companies that CEOs attempt to acquire or merge with in order to expand product arrays, enter new markets or enlarge their corporate empire. Stock prices are high, which usually gives executives confidence and arms them with a valuable currency. Debt is remarkably cheap thanks to pliant credit markets. And with profit margins already at records, CEOs ought to be looking for sources of growth in M&A.