When to fire your CEO (according to the army)
Companies with former-military directors are almost 50% more likely to fire underperforming CEOs. The military's culture of finite tours and strict accountability, exemplified by General George C. Marshall's rule that a general must be relieved if not outstanding, contrasts sharply with corporate boards that expect CEOs to stay indefinitely. Large-cap CEOs average 8.1 years in office, but military directors bring a performance-first mindset that accelerates turnover when the economy tightens.
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So whenever CEOs get fired, like, it is a big news item. Like, shows up in the press. Like, there's a lot of drama. Companies tend to have all-hands meetings to explain it to everybody. Like, it's a big deal when CEOs get terminated. So when this article came along out of the Wall Street Journal, and I'll show it here on the screen, basically it was the results of a study that was kind of shocking. And what the study showed was that if a board of directors for a company had somebody on it that was a former military member, that board of directors was incredibly more likely to fire that CEO. And to me, this just opens up a Pandora's box about a lot questions around the CEO job. And one of those is like, what does it take for a CEO to get fired? Which is super interesting. So for those of us that own businesses, hire leaders, firing, and maybe somebody that's on a board that hires and fires a CEO, this is a fascinating topic because there's some interesting dynamics in the whole thing. So that's what this video is about. I'm going to tell you what I learned. Stay tuned. Hi, my name is Michael. I am a business nerd. I run this channel to teach people like myself who are entrepreneurs concepts around business. And along the way, I teach myself stuff too. In my career, I've started dozens of companies. Some have been wins, some have not been wins, hired hundreds of people, and I love I love talking about business because I'm a business nerd. So if you like that kind of stuff, please subscribe. It'd make me happy. Okay, so back to this study here. I'll put it up here on the screen. It basically says across the entire sample of companies, about 2.1% of CEOs were fired when their company was underperforming normally. But if you had a military director on your board, meaning the board who is in charge of supervising the company, the rate of dismissal probability increased by almost 50% to nearly 3%. And that number of your likelihood of firing a CEO if the company was doing poorly, that number actually grew the more directors from the military background that you on there. And by the time you added 2 directors or 3 directors, 3 directors, you had a 5.2% chance in any given month of getting fired. So just a fascinating insight into the dynamic that if you have a military member on your board, like the CEO is much more likely to get fired. So I went and dug into like some of the dynamics around CEOs getting fired in general. And here's the first thing I saw. The higher up you go in an organization, and here's this chart from Fortune, the Fortune 1000 in 2018 and 2022, the higher up you go inside of organizations towards the CEO role, the less likely you are to get fired. In other words, the longer people tend to stay in those roles, the higher you go up in organizations. So that's kind of our first data point here. Like CEOs tend to stick in their role for a really long time compared to virtually any other role on average. And here's another data point here. What's happening with job hires and separations in the United States is changing in relation to what's happening in the economy. People are getting hired less. They're also leaving their jobs less. And that's happening month after month over the past 24 months. But even though that's happening, CEO turnover is spiking. So we went from CEO being the lowest turnover role inside of a company by and large to a situation where turnover is going way down inside of companies, but CEO turnover is spiking. So super fascinating what's going on there. And it's not specific to any particular region, but it's interesting what's happening. Employee turnover is actually the highest in the South, Midwest, and the West of the United States. So I don't know if that's like super relevant to this discussion, but it's a fascinating data point. So why do CEOs stick around so long in their jobs? It's actually interesting. The higher you will go up in the organization, the more time the organization also spends to try to hire for that role. So here in the case of an executive-level person, an average organization might spend 4 months on average trying to hire for that role, whereas just like an entry-level person, they may spend 30 days. So to some extent, maybe some of this is explained because they've spent more time vetting these particular candidates to hire a CEO and stuff like that. Therefore, like, they have a lower failure rate. Well, maybe. But back to this question of like, why, if you have military people on your board, are you more likely to have your, have your CEO get fired when your business underperforms? And people, as they started to dig into this, started to talk about the ideas of leadership and accountability that happened in the military. And so there was a famous general, George C. Marshall, You may remember him because he designed the Marshall Plan. That's how we rebuilt Europe after World War II. And he wrote the following line: He insisted that a general officer be immediately relieved if found less than outstanding. In other words, like, you either performed under Marshall's kind of approach to stuff or you got out. And I talked about this idea on Twitter and my buddy Rich Jordan, I'll put up his tweet here. He replied to me when I started to talk about this particular article. And he's a former military guy. And Rich, who runs a business now, he said, a commander is responsible for the overall performance of their unit. And I think what's interesting, what's going on here is the culture of the military and the way they approach things in terms of accountability for leadership, it shows up in these boardrooms of these companies. And another thing that happens that's super interesting in the military is you go into roles often expecting that your tenure is finite, like it's going to end at some point. Typically appointments are a couple of years. There might be a few that are a little longer, but you go into a role, you do a tour duty, and you leave as a leader. So people expect that your appointment isn't a permanent thing. On the other hand, we tend to approach the way we hire people in commerce, in the regular business world, expecting people might be there forever for the rest of their career. Like we don't ever say, hey, this is a 3-year job and you're going to get out. The average tenure of a CEO in 2023, because we have these people come into these CEO jobs saying you might be the CEO forever or until you retire, is 8.1 years. And it actually gets even worse in these big companies. So here's a chart of the large-cap CEOs. And basically this is around 2022. I pulled this data up from— basically they looked at how long these people have been in their jobs. 39% had been in their jobs for 1 to 5 years, 28% for 5 to 10 years. And then you start to see some of these people that have been in these jobs for decades, over 20 years. 8% of large-cap CEOs have had their job. Just this kind of crazy difference in how the commercial world appoints CEOs, meaning, hey, you may be here indefinitely or until you retire, whereas the military says, hey, we expect that this isn't going to be your job forever. And so to go back to this culture that the military has where they basically say that you're either doing the job good or you're out and it's somebody else's turn. A lot of this comes from this guy Marshall, right? He's kind of a famous general now, but he led a lot of the transformational work to right-size and right-shape the military back in the mid-1900s. And, you know, he went through and he was very demanding with people. And here's a great story of what he did. Here's, as transformational leaders do, Marshall began by focusing on people. He truly was ruthless at getting the right people in the right jobs and the wrong people out of them. And when Brigadier General Charles Rundle insisted that the Army's training manuals could not all be updated in 3 or 4 months and instead require 18 months to do it, Marshall twice asked him to reconsider that statement. It can't be done, Rundle repeated. And then Marshall replied, I'm sorry, then you are relieved, which means he was out of a job. And so people have tried to bring this military idea of you either perform or you get out to the commercial world. And Peter Drucker kind of one of the famous early writers about business, and he tried to bring this back in as early as 1967. And he wrote, "It is the duty of the executive to remove ruthlessly anyone, and especially any manager, who consistently fails to perform with high distinction." In other words, you're either performing really well in Drucker's world or you're getting out. And he goes on to talk about how this like corrupts other people in the organization. And he says, "To let such a man stay on corrupts the others," which to me is one of the most painful things. We talk about this idea that if you're an A-player and there's a B-player or a C-player weighing you down, like it's incredibly frustrating. And it tends to repulse those really good workers who leave to go find new places to work. And so I think in the end, like this disconnect of why CEOs don't get fired even though they underperform, I feel like this is starting to change and you're starting to see that in the stats that I showed you early on in the kind of recent trend, right, of people getting fired for underperformance. And the reality is that this isn't something I think that's happening in the world right now of business because business people are choosing to do it. It's because when the economy gets tough, we're forced to do it. You have to make changes if people aren't performing. Otherwise, like the business isn't going to survive. And in the end, like, man, I think as I look at this, I'm reminded and glad that I ran across this Drucker stuff again because this is so important as a board member and as a CEO. Like, leaders have to be great or you need to find them a different seat, possibly on a different bus. And secondarily, like, yeah, I really would love to recruit some military members to be on my board in the future because those people seem like they don't take no stuff. Let me know what you think. Thanks for being here.
