BS READS: The 'Merkel Method' and the elusive art of staying at the helm

Why CEO tenures are getting shorter and what lessons can be learnt from long-tenure political Leaders

Last month, 66-year old German Chancellor Angela Merkel announced she will step down from her position later this year after leading the country for 15 long years. One of the leading leaders of Europe, she will also make way for a new leader of her centre-right Christian Democratic Union (CDU). Not only did she last long, but the Merkel era was layered with political tenacity and robust economic growth when much of Europe was in strife and recession.
 

Merkel is not an exception in the political firmament. Outside of royal rulers (like Queen Elizabeth II) and many dictators, especially from African countries, the shifting global landscape has seen many tough and tenacious leaders who have served relatively long years. These include Recep Tayyib Erdogan of Turkey (14 years); Lee Hsien Loong of Singapore (17 years); Vladimir Putin of Russia (13 years); Xi Jinping of China (9 years) and Indian Prime Minister Narendra Modi since 2014. While the above gives a snapshot of the relatively long tenures of political leaders, it must be qualified that Xi and Putin have changed the rules of the game with regard to their respective country’s constitutions to enable them to extend their tenures; in Xi’s case to become 'president for life'.
 

Compare these to the leadership tenures of corporate CEOs. While there are some exceptions like Indra Nooyi, who led Pepsico as CEO for 12 years, multiple studies across the world have shown that CEO tenures have been failing and falling. A recent global Korn Ferry study indicated that the average CEO tenure has fallen to 6.9 years from 8 years in 2016, while a PwC research found that it was around 5 years.
 

Cut to India and it is estimated that the average reign of an Indian CEO is less than five years, closer to about four. Of course, in India too, Aditya Puri lorded over HDFC Bank for 25 years for over two decades. But the moot point is that these instances are more exceptions than the rule. Also, some sectors like information technology and banking have been kinder to CEOs than many others. The key questions, therefore are, what lessons business leaders can learn from political patriarchs (and matriarchs) on how to stretch their stay and the reasons for short CEO tenures.
 

Turning adversity into opportunity: Just about a year back, Merkel’s political stock was low. And then the Coronavirus (Covid-19) pandemic struck. She grabbed the centre-stage once again by taking decisive charge of the situation and won the hearts of Germans through her impassioned and emotional appeal to fight the country’s “greatest challenge since World War II and 1945.” Germany’s early success in keeping casualties low, its strong fiscal programme and Merkel’s calm fore bearing restored her approval ratings to over 70 per cent. Similarly, in early 2019, when the nation was preparing for the polls, the Pulwama terror attack had paralysed the country. But then Prime Minister Narendra Modi went in for the Balakot surgical strikes which was one of the many reasons that ensured Modi returned to power and gave him another five-year tenure. The point of learning for CEOs from the above is the need for decisive leadership which would be well be appreciated by their stakeholders.
 

Delivering sustained economic results: One of the most important legacies of Angela Merkel is her contribution to economic growth and development. Germany’s economy grew by over a third during Merkel’s tenure which is one and a half times the growth rate of its nearest EU rival, France. Although the latest figures show that the GDP fell by 5 per cent in 2020, experts believe that it would have been much worse had Merkel not been in charge. Further, over her 15 year rule, Merkel has survived at least four economic crises. Governance and balanced stakeholder management, partly has been key to her success. Says Shubhashis Gangopadhyay, research director, India Development Foundation (IDF) and dean, Indian School of Public Policy, ”Both set of leaders are concerned with governance: one with political governance and the other with corporate governance. However, the target audience and objectives for both leaders are different: one is maximising shareholder returns and the other is balancing the conflicting interests of different groups.” But the bottomline is the ability to deliver on results – quarter by quarter, year by year.
 

Take Singapore as another example. A high-income economy, it provides one of the most business-friendly environments for investors and is ranked among the world’s most competitive economies. In 2020, even though its economy contracted due to Covid-19, it did much better than expected through a highly planned programme to build resilience and stability in the economy. Says Singapore-based independent Management Consultant, P C Abraham, “I think a key contributor to PM Lee Hsien Loong's success is a focus on ensuring that the government delivers on the bread and butter issues that concern ordinary Singaporeans - employment, healthcare, housing, education, public transport.”
 

Cultivating tenacity and toughness: Politics is the art of the possible as demonstrated through the leadership of Putin and Erdogan, even as the former is now under pressure. Both leaders have been tough as nails. But there is a much-favoured management theory that suggests having a combination of toughness, fierce resolve and humility in leadership makes one a level-5 leader, the highest on the scale. Jim Collins, celebrated author of the best-seller Good to Great, popularised this idea. Ratan Tata and N R Narayanamurthy, who led their respective groups for more than two decades each come to mind in this genre. But, in this case, tough political leaders can take a leaf from corporate chieftains: humility and empathy.
 

Short CEO tenures
 

Irfan Rizvi, professor of Leadership and Change Management and chair, HR Programme at the International Management Institute (IMI) cites four critical reasons for shorter CEO tenures. These include: impatience of the Board, changing Board composition and dynamics; lack of commitment of the CEOs to ride it out; growing opportunities where C-suite leaders are becoming entrepreneurs and start-up artistes; and the fading halo around CEO-ship.
 

With pressure for sustained quarter by quarter results as well as demands from an increasing number of aggressive external groups like media, activists, government et al, business leaders are not able to maintain the much needed resilience to make it worthwhile to last out long despite the fact that CEO compensation has been rising. In Indian MNC subsidiaries, frequent global changes impact leadership in local operations and in Indian business families, leadership is often at the askance of the family business owners. The fact is that the share of true-blue professionally-run firms like HDFC Bank and Infosys where Puri and Murthy flourished are far and few between in the Indian corporate landscape. Finally, shortage of top management talent within companies hinders good succession planning and best practices in CEO grooming.
 

Of late, a crucial external driver has emerged which makes CEO-ship not for the faint-hearted. Jack Ma is playing hide and seek in China to survive the onslaught of the government. Economic competitive battles in sectors like telecom have acquired political and policy hues. And, today, the government at the Centre and states are the biggest spenders and companies and CEOs need to increasingly learn the art of managing the government. Clearly, with pressure on CEOs and many of them falling by the way side, they could learn a few lessons from their political counterparts on the art of staying longer at the helm.
 

(George Skaria is a former Editor of Indian Management and Asian Management Review)