Why Not Fire All The CEOs?

One surprising consequence of the financial crisis is that not many CEOs have been fired. A new report from Booz & Company says that 14.4% of the 2,500 biggest publicly traded companies replaced their CEOs in 2008, up from 13.8% in 2007. And in the US and Europe, the rate of CEO turnover actually fell. What gives? Well, the thinking is this: Scapegoats are a nice thing to have when asset markets implode. But so is certainty. And firing your CEO in the middle of a financial crisis doesn't seem like the appropriately risk-averse thing to do.

But I also thought the Booz report was strange to read in light of this new Atlantic article (more shameless shilling) about how, contrary to the cult of Steve Jobs, CEOs don't actually matter:

But how strong is...executive power? In their groundbreaking "Leadership and Organizational Performance: A Study of Large Corporations," first published in 1972 in American Sociological Review, Stanley Lieberson and James O'Connor argued that it's weak indeed. Perhaps reflecting the anti-authoritarian spirit of the times, the authors asserted that the CEO's influence was seldom decisive in a company's performance. They had the numbers to back up this view. Working with a database of 167 companies, they teased out the effects that various factors had on corporate profitability, from the competitive state of the industry to the size and structure of an individual company to the CEO's managerial decisions. "Industry effects," such as the amount of available capital and the stability of the market, accounted for almost 30 percent of the variance in corporate profits. "Company effects," such as the firm's historical place in the corporate pecking order, explained about 23 percent. "CEO effects" explained just 14.5 percent. And even this impact should be viewed skeptically: it unavoidably bundles CEO actions that were genuinely smart and skillful with those that were merely lucky.

I think there's a nice paradox here. On the one hand, CEOs don't matter all that much, so why bother firing one? On the other hand, CEOs do seem to matter for public relations purposes. Even if a Steve Jobs isn't uniquely central to the success of Apple, lots of Apple shareholders seem to be under the impression that Steve Jobs is made out of moonbeams and pixie dust. I can imagine the inverse holding true as well: Even if it's not practically beneficial for a company to fire its CEO, doing so can create the impression that the company is doing something, anything -- and even when the new boss is just as bad as the old one.