Speed is of the essence for new chief executives

November 8, 2013 12:20 pm

Speed is of the essence for new chief executives

By Brooke Masters

Acer, the struggling computer maker, ditched its chief executive for the second time in two and a half years this week. The world’s fourth-largest computer maker by shipments bid farewell to JT Wang and promised another restructuring after a series of poor financial results. Jim Wong, who is corporate president, now has the unenviable task of helping the Taiwanese manufacturer catch up with the consumer shift from laptops and notebook computers to smartphones and tablets.Changes are clearly needed at Acer. Revenues fell 11.8 per cent year-on-year to $3.1bn in the third quarter and its share of the shrinking PC market also slipped, from 11.4 per cent a year ago to 8.3 per cent last quarter, according to research by Gartner.

But as Mr Wong unpacks his belongings in his new office, he faces a critical choice. How fast should he start sacking people and refocusing the business? Acer says it is chopping its workforce by 7 per cent and narrowing its product range but its founders are also leading a committee to “propose changes in the company vision, strategy and execution plan”. The new chief may therefore feel pulled in two directions.

New research by McKinsey suggests that delay would be a mistake. The consultancy looked at 365 CEOs who took office between 1990 and 2010. Those who moved relatively quickly to reallocate capital and reshuffle their executive committees delivered better financial results. Those who moved quickly on both fronts – within a year for people and within three for capital – delivered median annual total returns to shareholders of 10.9 per cent compared with 4.7 per cent for the slowcoaches over the first six years of the chief’s tenure. “Fast” CEOs also lasted longer, with three-quarters surviving at least six years, compared with 65 per cent in the slow group.

Authors Stephen Hall and Conor Kehoe concluded that new leaders should consciously exploit their honeymoon periods to shift capital from mature businesses to those with more growth potential. Fast CEOs were twice as likely to prune existing businesses and nearly three times as likely to exit businesses altogether.

Whether Mr Wong and his compatriots are able to make the necessary changes this time remains an open question

The study probably exaggerates some of the advantages of moving quickly – chiefs who feel they need to slash and burn are more likely to be dealing with a turnround situation, where the potential for growth in shareholder return may be greater than for a group that has been steadily delivering the goods.

But there is something to be said for striking while the iron is hot. Acer has been in a bit of a holding pattern – it lost its previous chief executive in mid-2011 largely for the same reason – a perceived failure to react quickly enough to the rapid changes in the consumer electronics market.

Whether Mr Wong and his compatriots are able to make the necessary changes this time remains an open question. The McKinsey study suggests that insiders find it harder to move quickly and he has been with the company for 27 years. Still, three years of corporate crisis would be a terrible thing to waste.