David Jones’ CEO Paul Zahra’s warning: CEO burnout is a risk to company performance; “For many CEOs the hours are relentless; you’re working around the clock seven days of the week. I need a break.”

Leo D’Angelo Fisher Columnist

Paul Zahra’s warning: CEO burnout is a risk to company performance

Published 23 October 2013 11:50, Updated 23 October 2013 13:34

The abrupt resignation of Paul Zahra as chief executive of retailer David Jones raised serious questions about the company’s corporate governance: why was the company taken by surprise and why was there no obvious succession plan in place? (See: ‘Should have known better’.) But Zahra’s shock announcement that he intends to step down raises another important question: are Australian companies working their chief executives too hard?

The answer, at least by Zahra’s example, is yes.Zahra, chief executive since 2010, and a David Jones executive for 12 years before that, could easily have confined his reasons for leaving to the usual “personal reasons”, but he chose to elaborate – a frustratingly rare occurrence when it comes to chief executives moving on. (In fact, the official David Jones ASX announcement attempted to make do with the “personal reasons” ruse, but Zahra had other ideas.)

As it happens, Zahra’s reasons were personal: he was exhausted and could go on no more. (Although he may have to continue in the role for at least six months while headhunters search for his successor.)

Zahra took over the running of David Jones when his predecessor Mark McInnes suddenly resigned following lurid sexual harassment allegations by one of his employees. The scandal, and further allegations of a management culture that tolerated sexual misconduct and bullying behaviour, rocked the retailer and Zahra had the immediate challenge of calming spooked investors and suppliers as well as disappointed customers.

Zahra also had the challenge of overhauling the 175-year-old retailer’s strategy at a time of depressed sales and rapidly changing consumer behaviour that increasingly favoured online shopping. After David Jones inexplicably attempted to ignore the online revolution, Zahra moved to transform the department store into an “omni-channel retailer” – it was a mammoth task structurally, technologically and culturally.

Big bucks

Such challenges are what chief executives are on the big bucks to handle, but a macho executive culture that brooks no sign of “weakness” has added to the normal stresses of running a major corporation: working days are getting longer, weeks are not long enough and work-life balance, to which chief executives pay regular lip service, is for somebody else.

Zahra had enough of life as a hero-CEO and he was prepared to say so in the most unambiguous terms:

“For many CEOs the hours are relentless; you’re working around the clock seven days of the week,” he told Fairfax Media. “I need a break.”

After three-plus years in the role, Zahra candidly admitted that “it has taken its toll and I’m just simply tired”. (The only curiosity here is that Zahra had in the weeks leading up to the resignation insisted to journalists that he was in it for the long haul.)

The problem with chief executives’ gruelling schedules and crushing workloads is that they become the norm and no chief executive wants to be seen as wimping out. Soon analysts, journalists and investors become inured to such heroics and include skewed notions of “commitment”, “toughness” and “resilience” in their assessments of CEO performance.

Burn out

Not Zahra, however. He’s burnt out and he wants people to know it. So why do we work our chief executives so hard? What happened to smarter not harder? What happened to Australian executives’ rejection of insane corporate cultures that all but make prisoners of their employees – such as Japan’s “salaryman” culture, considered the antithesis of a more balanced approach to work and recreation before anybody had even coined the term “work-life balance” – or their disdain for the pampered “superstar CEO” culture of corporate America.

One wonders how much of this exaggerated, he-man posturing by chief executives is part cultural cringe, a demonstration that Australian chief executives are at the very least equal to the world’s best.

Or maybe there are more grasping considerations at play. Could it be that chief executives have taken the view that if they are to demand the mega-million salaries they must be seen to be working Herculean hours. Five-am starts? Weekend meetings? Three days a week in planes? Not a problem. Now about that $3 million bonus . . .

And let us not forget the power of ego. Not surprisingly, chief executives have healthy egos, and chief executive egos are in overdrive once again after the momentary contrition and self-effacement following the global financial crisis.

And finally, it is impossible to dismiss the influence of peer pressure and, however irrational, entrenched expectations.

But how effective are these Trojan chief executives? At a time of economic volatility and deep structural change it seems counter-productive to be running chief executives into the ground, in many cases attending meetings, briefings, functions – very often interstate and overseas – that have no bearing on their contribution to company performance.

The chief executives of our biggest companies are the cream of Australian executive talent, but it’s questionable that the companies they lead are extracting maximum value from the nation’s best and brightest.

Pressing issue

CEO burnout is a real and pressing issue for the corporate sector.

Zahra’s departure as David Jones’s chief executive has caused dismay not just because it was sudden, or because it was accompanied by unusually frank explanations, but because he had been CEO for “just” three-and-a-half years.

A study of Australia’s top 200 companies by Booz and Company shows that median CEO tenure is in decline: from 5.7 years in 2006 to 4.7 years in 2011 to 4.2 years in 2012.

Shorter tenures suggest a riskier environment for modern chief executives plying their craft in volatile economic times, but there can be no doubt that many chief executives are also hitting the wall because of unreasonable pressures and demands. (Globally, the average CEO tenure is also in decline, but at 4.8 years is not as short as Australia’s.)

This is a challenge for company boards. If Australian companies are to be globally competitive and achieve the transformation necessary to be sustainable businesses, they need to rethink their expectations of chief executives, the management and leadership structures they have in place to support their leaders, and the standards and behaviours by which they measure CEO performance.

Boards have no excuse for not recognising Zahra’s dramatic resignation for the wake-up call that it surely is.

 

Leo D’Angelo Fisher Columnist

Should have known better: Why Paul Zahra’s frank admissions and sudden exit are another black mark against David Jones’ board

Published 22 October 2013 11:55, Updated 24 October 2013 08:48

The departure of chief executive Paul Zahra raises questions about David Jones’ corporate governance. Photo: Michel O’Sullivan

Nobody expects media releases, even when they are Australian Securities Exchange announcements, to be sources of unvarnished truth – more is the pity – but as media release headings go, retailer David Jones wins itself no points for honest disclosure: “David Jones announces CEO succession plan”.

“Succession plan” would seem to be a generous over-statement.

The Monday announcement that chief executive Paul Zahra intends to step down upon the appointment of a successor revealed that, far from having a plan, David Jones was caught flat-footed by Zahra’s apparently surprise decision to move on after three years in the role.

“A succession process has accordingly begun, which will involve an extensive national and international search,” the announcement stated. “This process could take some time.”

Doesn’t sound like much of a plan. A “succession process” does not a “succession plan” make. The gentle warning that the process could take “some time” suggests that the David Jones board is hardly in control of the company’s destiny.

Mad scramble

What has begun is a mad scramble to replace Zahra; a process, such as it is, that could take anywhere from six to 18 months, by chairman Peter Mason’s own estimation.

In the meantime, the media release/ASX announcement explains, “Paul will continue to work, with the unqualified support of the board, to lead the business and manage a smooth transition to new leadership”.

Zahra’s intended departure reveals just how unprepared the board is to handle the loss of its chief executive.

The board plainly has no succession plan in place at all. There is obviously no internal candidate, let alone a “pipeline” of potential leaders, to ensure a smooth transition.

Investors are entitled to feel nervous. Just what shape is David Jones in that there is no obvious internal successor to take the reins from Zahra?

The all-at-sea response to Zahra’s departure hardly suggests a company brimming with the talent needed to drive the retailer through these fraught times for the economy generally and for the retail sector in particular.

It is also a mark against the David Jones board.

Not planning for Zahra’s successor might have been understandable had the career retailer just commenced in the role, but he was appointed more than three years ago, in June 2010. Planning for Zahra’s successor should have been well underway – including the grooming of internal candidates – irrespective of how long he intended to remain with the company.

The circumstances in which Zahra was appointed in 2010 should have been all the more reason for the David Jones board to ensure there was a rock-solid succession plan in place.

Zahra, who had been an executive with David Jones for 12 years when he was appointed chief executive, landed the job when then chief executive Mark McInnes was embroiled in a nasty sexual harassment dispute with a member of staff, over which he resigned.

Should have known

The David Jones board, better than most, should have known how quickly circumstances can change and how important it is to guard against being caught by surprise by the sudden loss of a chief executive.

McInnes has since recovered his career as the chief executive of Solomon Lew’s retail group Premier Investments, but David Jones has learnt nothing from the McInnes fiasco and once again has been caught by surprise by the loss of its chief executive.

The difference this time is that Zahra will not be leaving overnight; he will stay in the job until his successor has been appointed.

But this is hardly ideal given that Zahra, 47, has explained that he is leaving because he is exhausted.

“I think three-and-a-half years in the department store is a long time and if you think about our restructuring post the global financial crisis [and] us not being ready for the digital world, it has taken its toll and I’m just simply tired,” Zahra told Fairfax Media.

“The past three-and-a-half years as a CEO … weren’t normal, let’s face it. It was tough going and I am signalling my intention to resign … and this allows the market to go through a process to find the right candidate.

“Remembering how I fell into the job, I wouldn’t want anyone to go through the same process.”

Unfortunately, the David Jones board appeared not to recall how Zahra fell into the job or it would have planned for just such a contingency.

How effective, or committed, Zahra is going to be as chief executive while he waits for his successor to be appointed, given his state of exhaustion, remains to be seen.

More questions

The reasons for Zahra’s departure raise another question about the board’s oversight of the company.

Was it aware that Zahra was feeling the pressure of the job?

“For many CEOs the hours are relentless; you’re working around the clock seven days a week,” he told Fairfax Media. “I need a break.”

Zahra has been unusually and refreshingly candid about the crushing pressures of the job – and it remains to be seen whether this candour will come back to haunt him when he seeks his next chief executive role, or whether in fact he will call it a day as a chief executive and join the directors’ circuit or follow other pursuits in business.

Zahra raises a pertinent warning about the pressures faced by the modern chief executive, a warning one would normally not hear from today’s warrior class of hero chief executive who would never let on that the job has become too much.

As a separate issue, let us hope that Zahra’s frank admission about the pressure of the job will lead to some questioning of what the chief executive’s role has become and whether this is healthy both for the individuals concerned and the companies they lead.

Did the board know?

More immediately, however, the question is: Did the board know about Zahra’s exhaustion? And if so, what did it do about it?

According to The Australian Financial Review, chairman Peter Mason was aware of his chief executive’s unhappiness in the job. Zahra’s decision, he says, was “something he’s been discussing with me personally for some time”.

In which case the next question is: Why was there no obvious succession plan put in place as a result of those discussions (quite apart from why was there no succession plan already in place)?

Here are some more questions: On learning how onerous the chief executive’s job had become, what steps did the board take to ensure that the load was eased? And just how had the role come to be so crushing? What did this reveal about the structure, responsibilities, skills and reporting lines of the leadership team, let alone the board’s oversight? What will the board be doing to ensure that the next chief executive is not similarly burnt out?

The departure of Paul Zahra raises many questions about the governance of David Jones, the management culture of the retailer and the leadership structures in place. Despite Paul Zahra’s hard work during the past three years, is David Jones really prepared to be a retailer for the 21st century? One can only wonder if Zahra’s departure is the end of the story, or just the beginning.