Vocabulary:

outbid rivals – обойти конкурентов

back-office - отдел обработки документации, бэк-офис: отдел банка или брокерской фирмы, занимающийся ведением счетов, оформлением различных операций, расчетами, а не совершением сделок или непосредственными контактами с клиентами

be nothing new – не являться чем-то новым

high-speed data net­works – высокоскоростные сети передачи данных

standard of living - уровень жизни

72. Firing the Boss

SACKING someone is a horrible task, as near to commanding a firing squad as most civilised people get these days. It is not quite as unpleasant as being sacked, of course, and it is easier if you can delegate your dirty work to somebody in human resources. But the sheer nastiness of telling somebody it's time to go is enough to make the toughest hesitate. Nowhere is this truer than in the boardroom. Confronted with a chief executive whose strategy is not working, the instinct of many company directors is to wait in the hope that something—the shares, ideally—will turn up. Far better to find a replacement, quickly, and pay the price.

An able chief executive has extraordinary power to make or break a company. Take the way that Robert Ayling has turned Britain’s BA from ‘the world’s favourite airline’ into just another troubled carrier. Or look at how Gil Amelio damaged Apple Computer and Edzard Reuter wrecked Daimler-Benz. But the speed with which Apple’s resurrection followed the return of Steve Jobs, or the vigour with which Jurgen Schrempp has restructured Daimler and Jean-Marie Messier has transformed France’s Vivendi, all show the value of talent.

Exceptional skills required

Such influence reflects the demands of running a large firm these days. Backed by the corporate bureaucracy, a chief executive might once have got by with good managers, cost-control, and a beady eye on the accounts. Although such things still matter, a chief executive now has to think for himself. He needs to be an innovator and an entrepreneur with a global vision. He needs political skills, to steer a course through the regulatory maze. He needs to be a salesman and a preacher to woo consumers, employees and investors. Which is why a firm with a good boss does everything in its power to hang on to him – and why some of the most successful chief executives spent years in the job. Yet, because the costs of failure are so high, it is also essential to get rid of an underperforming boss. In the United States, more boards are doing their duty. Indeed, running a big American firm or a Silicon Valley start-up is now riskier than being grand vizier in the court of the Ottoman sultan. Boards in other parts of the world are too reluctant to pull the trigger.

A few firms go to the other extreme and become serial sackers; many others, even American ones, seem stuck with a fossilised strategy and a familiar face. According to Rakesh Khurana, of MIT's Sloan School of Management, most boards give the chief executive a honeymoon of between two and three years. Then follow a couple of dangerous years. After that, the longer you are chief executive, the less likely you are to be fired.

Where there is inaction, institutional investors bear part of the blame. Rather than step in when performance flags, many prefer to sell the shares or sit back and wait for a free ride on the activism of others. When investors act, as they do increasingly in America, they discover that replacing the boss is a labour of behind-the-scenes negotiations.

Which is why sacking the boss ultimately comes down to the judgment of a firm's directors. Yet boards find many excuses for doing nothing. The boss is near retirement; he is the founder; he is the founder's son. It would look bad; it would be hard to find someone better; it would show that the corporate strategy had been less brilliant than the board had told shareholders at the previous annual meeting.

How to change this? An essential is to structure the board so that it can scrutinise the chief executive. That is best done when the roles of non-executive chairman and chief executive are separate, so that rebellious directors have a leader. Non-executives should meet without the chief executive, and make a regular evaluation of the boss's achievements.

Directors will do this better if they have a stake in the firm. Many companies have grasped the need to align the interests of chief executive and shareholders, with shares or (less good) share options; far fewer have seen the need to align the interests of directors and shareholders in the same way.

Many mediocre chief executives owe their jobs to bad boards. The longer a chief executive has been in the job, the more likely he is to have appointed the executive directors and brought in his chums as "independent" non-executives. When the chief executive's tennis coach and golf partner have to decide his future, they are unlikely to vote for execution—a reason for ensuring that non-executives are truly professional, and value their reputation for independence above their board fees.

When it is time to make a change, firms should reluctantly accept that they may have to pay a bad boss to leave. To pay a crooked one would be wrong. That aside, when a chief executive leaves under a cloud, his career is wrecked and he is unlikely ever again to run a firm of similar size. Buying out the boss may be the fastest way to give a company a fresh start. A fresh start is exactly what many companies need.