In today’s Finshots, we explore whether it’s fair to blame CEOs when a company doesn’t perform well.

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The Story

Even if you’re not a maritime expert, you probably know that a ship captain’s job is pretty important at sea. They plan the route, make the big decisions and handle pretty much everything on board. But it’s the helmsman who physically steers the ship, ensuring it follows the set course. These are different roles. Quite different, in fact: one more strategic and the other more tactical, yet both are essential for keeping the ship on track.

Now, think of a company. It wouldn’t be an exaggeration to compare its CEO to a ship’s captain, would it?

For starters, the CEO sets the vision, crafts strategies, and ensures the company stays afloat amid challenges. But when the waters get especially turbulent, they might also need to step in as the helmsman, taking direct control to navigate through storms.

Simply put, CEOs are always at the helm, whether planning or actively steering.

And this brings us to today’s story.

Last week, a Reuters article gave an in-depth account of CEO Pat Gelsinger’s tenure at Intel. He recently stepped down or, as some suggest, was ousted even before completing his planned turnaround of the company.

Here’s what happened.

Intel was once the uncontested leader in computer chips. And they had a pretty sweet deal with TSMC, Taiwan’s chipmaking giant, to manufacture their chips. But when Gelsinger took over in 2021, he had a lofty dream: to make Intel a key player in the “foundry” business. That’s producing chips in-house, just like TSMC. He aimed to reduce reliance on the Taiwanese chipmaker and manufacture these indispensable chips on American soil.

The US government was enticed to believe in Gelsinger’s vision and, through its CHIPS act, poured billions into bolstering Intel’s domestic manufacturing ambitions.

But things went south quickly when Gelsinger made some not-so-humble public remarks about Taiwan’s geopolitical instability—further stating that relying solely on TSMC was not ideal due to Taiwan's strained relations with China.

Naturally, this didn’t go down well with TSMC. They retaliated quickly by scrapping Intel’s 40% discount on chip production, forcing Intel to pay full price. This hit profits hard.

This was the first blow that shook the ground for Gelsinger.

And then came the AI wave. Tools like ChatGPT boosted demand for AI chips, but Intel missed the train. With its cutting-edge GPUs, Nvidia became the go-to choice for AI applications, skyrocketing its stock price. Though Gelsinger had plans of jumping onto the AI bandwagon, Intel struggled to find its footing in this booming AI market.

Two major blows and Gelsinger’s tenure was cut short.

Sounds fair? Maybe.

A similar fate befell Starbucks’ Laxman Narasimhan. Declining sales and plunging stock prices in key markets like the US, China, and India led to his abrupt exit despite his earlier stellar track record at McKinsey, PepsiCo, and Reckitt.

Nike’s John Donahoe, Nestlé’s Mark Schneider, Boeing’s Dave Calhoun, and Hertz’s Stephen Scherr, each of them had to step down recently amid sales slumps, competition, or even a shrinking market.

In fact, according to exechange.com, 74 of the 191 CEOs who resigned from their roles in FY24 were allegedly forced out.

So, here’s the question: Is it fair to put the blame on the CEO alone for a company’s struggles?

Well, it’s a tricky debate.

On one hand, CEOs are the face of the company. But let’s not forget the fact that companies are complex ecosystems. The performance of a business isn’t solely dependent on the person at the top. Market conditions, geopolitical factors, and even decisions made by teams below the CEO might influence outcomes.

Take Hertz’s Stephen Scherr as another example. His futuristic plan to electrify Hertz’s fleet by buying 100,000 Teslas initially looked like a stroke of genius. His decision not only boosted Tesla’s valuation but also positioned Hertz as a forward-thinking leader in the EV revolution.

However, when Tesla unexpectedly cut prices of its EVs, the resale value of those cars decreased, forcing Hertz to swallow a $245 million charge. Add to that weak demand and mounting losses, and suddenly, Scherr was not a great leader and was shown the door.

Could he have foreseen Tesla’s pricing strategy or the lukewarm response from renters? Perhaps not.

Then there’s the matter of execution. Even the best-laid plans can falter if middle management fails to deliver.

No doubt, it’s one of the toughest jobs out there. CEOs have to navigate internal operations, external market challenges, and economic headwinds while maintaining profitability and stock value. They need confidence, adaptability, and the ability to make and revise critical decisions on the fly.

But on the flip side, with great responsibility comes great pay.

You see, the average S&P 500 CEO earns 196 times more than the typical employee. Global CEOs earn hundreds of millions of dollars.

In India, too, these top bosses are paid handsomely. Wipro’s former CEO, Thierry Delaporte, took home a whopping ₹167 crore in FY24. HCL Tech’s C. Vijayakumar wasn’t far behind with ₹84 crore, while Persistent Systems’ Sandeep Kalra made ₹77 crore. The list is long.

This hefty compensation reflects the immense pressure and, more so, the expectations placed on their shoulders. If they earn this much, they had better be constantly on their toes and fulfil all their responsibilities.

And rightly so. When there is so much at stake, and the compensation is also massive, there cannot be much room for faults or bad decisions.

But when they falter, even the most respected leaders can be shown the door.

As Alan Lafley once said, “In football, if a team has a bad season, the players aren’t the first to go—it’s the coach or manager.”

What do you think?

Until then…

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