In class this week, we talked a lot about CEO’s and what they are worth. What should their compensation packages be and who has the right to decide? Rather than focusing on the actual monetary value on a CEO’s head, I wanted to talk about what to value when choosing a CEO. How does a company find a CEO who will transform their company in to something spectacular, like Steve Jobs did for Apple?
Just recently, Gap has announced that they will be closing 200 of their stores by 2013 (which is one in every five of their stores). Howard Davidowitz (president of Davidowitz & Associates and a long time retail insider) stated “The Gap’s problems are far simpler than that. They are not selling fashion people want to own.” When asked why this is, Davidowitz explained that Gap’s CEO, Glenn Murphy, is a very competent executive, but lacks the experience needed to right the ship. Fashion people win in fashion companies. I’ve never seen a numbers guy come in and be successful in a fashion company. I’ve never seen one example of it.” Most people in the fashion industry have agreed that bringing in an outsider to run a fashion company just doesn’t work. Before becoming CEO of Gap, Glenn Murphy was CEO of Shoppers Drug Market. Many including Davidowitz seem to be convinced that removing Glenn Murphy would brighten Gap’s future tremendously. Gap has experience falling sales, lower profits, and slow turnover of inventory since Glenn Murphy took over. Experts believe it is because he just doesn’t know how to get the right merchandise at the right price in the right place at the right time. If an executive does not have a thorough understanding of all these things it is impossible to give consumers what they want.
After reading about Gap’s decline and the mixed reviews on CEO Glenn Murphy, I started wondering whether this was true for all industries or just fashion. Fashion is a completely different world and not being familiar with it makes decisions tough in a fast changing industry. But can’t this logic be used in any industry? If a CEO doesn’t understand a business how can he/she run it? I’d disagree that it is impossible for a CEO outside an industry to do well. I think the odds are definitely against them. There are obvious advantages in having industry experience. And someone who has been a part of it is much more likely to have a passion for it. If I was hiring a CEO I would look for one who understood the industry and liked the industry. However, I would not rule out a candidate simply because they ran a company in another industry.