Does sacking the boss really work?

Several high-profile CEOs are searching for new employment, but will their replacements fare any better?

Chief executives are almost never sacked, but an unexpected resignation usually tells its own story. There have been quite a few of those recently, and at some very big names. Yesterday another corporate titan bit the dust as the curtain was brought down on Nam Yong's time at the head of LG Electronics. He agreed to "take responsibility for the flagging performance" at the world's third biggest mobile handset maker.

The company is hoping his replacement, Koo Bon-joon, the brother of the chairman of parent company LG, is the man to lead a revival at a business that saw second-quarter profits plunge by 90 per cent as it struggled in the fiercely competitive smartphone market.

Mr Yong's departure came just days after rival handset maker Nokia rearranged its deckchairs, parting company with chief executive Olli-Pekka Kallasvuo, a 30-year veteran at the Finnish giant, in favour of Microsoft business manager Stephen Elop. Mr Elop, a Canadian, is the group's first leader from outside Finland. Closer to home, BP have announced the end of Tony Hayward's tenure (in July) in the aftermath of the Gulf of Mexico oil spill, while James Hussey, the boss of the scandal-wracked banknote printer De La Rue, walked the plank in August.

And they won't be the last. Ian Tomlinson-Roe, a partner in PricewaterhouseCoopers' (PwC) human resource services business, says that investors are "asking deep and searching questions of executive leadership teams within companies" during the current period of financial and economic pressure.

But does the answer to these questions lay in changing the men, or more rarely the women, at the top of the companies they own? And what are the chances of the new leaders mentioned above turning their corporate Titanics into sleek new ocean liners?

Reasonably good, says Markus Perkmann, a research follow at Imperial College Business School. He notes that the incidence of defenestrations at the top of big companies has increased over the last 10 to 15 years.

"CEO turnover is more likely when the performance of companies is low, and it is more likely that outside candidates are brought in when things are particularly bad. There has been a lot of research recently on whether changing the CEO works and it seems that the effect is usually either neutral or positive," he says.

Mr Perkmann says this is particularly true for deeply troubled companies: "When a new CEO comes in to these situations it is easier for them to do things. They have the legitimacy to make changes."

Outsiders, capable of fresh thinking and new approaches, are particularly successful, he says. However, he adds: "It is much easier to have a more positive impact if you are working in a growing industry as is the case with, say, LG Electronics or Nokia than if you are looking at a company like BP, which is a more mature business and where its product is more static."

He also has one key piece of advice for the new boys: "They will have legitimacy and if they come from outside they will have new ways of thinking, but they are more likely to be successful if they don't try to do too much at once."

Michael Rendell, global head of the human resource services business at PwC says an external hire isn't always the best move: "When looking for a replacement, organisations should take time to reflect on the talent in their own ranks. On a CEO's departure, the kneejerk reaction is to look externally, often at a competitor's CEO. This drives up pay levels and may not always be the best move."

He adds: "It [a change at the top] can work. Sometimes just the appointment of a new CEO can change sentiment, which can have a very positive effect. A new CEO can also set a new strategic direction and if they have a proven track record in turnaround situations the results can be beneficial and visible quite early on.

"Each case, though, depends on a number of unique and sensitive factors so there is no definitive answer."

Henry Nicholson, a partner in Deloitte's reorganisation services team, is a specialist in the distressed sector and notes that struggling businesses are not always struggling because they have bad chief executives. They often find themselves in difficulties because they have been left with too much debt that was built up in the era of cheap credit before their current leaders took over.

"Does changing CEO work? It very much depends on the situation," Mr Nicholson says. "When a business gets into real trouble the challenge for a CEO is whether they can they shift their mindset from maximising value for shareholders to protecting value for creditors and trying to ensure a business survives. Many recent restructurings have involved decent, well-run businesses with bad balance sheets."

However, he says that in some situations it is necessary to change a chief executive for a business to move forward: "You have to ask whether the CEO can make the changes needed, to recognise the changes in a business's circumstances. Changing CEO can have a galvanising effect. It can put the people at the top of their game, for example. But it can also create uncertainties and that can cause problems.

"Certainly in the distressed sector there hasn't been that much changing of CEOs because the companies we see are not facing problems caused by bad performance. They are facing problems caused by bad balance sheets."