Dubai Gone are the days of plush offices, window-to-window views, sky-high air miles, and Barbie-lookalike secretaries: Today the corporate boys on top are squirming in their cushy seats.
Chief executive officers of the UAE and regional companies say the pressure is on to deliver better results quicker in order to meet challenging board expectations in 2010, which they have dubbed the year of ‘consolidation and growth', while plastering on a smile to inspire optimism in their employees, clients and markets.
While the number of CEOs forced from office actually fell to 3.3 per cent globally in every industry in 2009, its lowest levels since 2003, there are still major pressure points for current CEOs, according to a recent report by management consulting firm Booz and Company.
The CEO succession rates in the world's 2,500 largest companies held steady at a high annual rate of 14 per cent in 2009, but the Middle East has a 2.1 per cent higher CEO turnover than the global average, according to 10th annual CEO Succession Study.
In the past decade, boards drastically cut nearly two years off the average CEO's tenure to 6.3 years, forcing them to deliver results in a shorter period, with less time to execute game-changing strategies.
There is little tolerance for poor performance, especially in 2009 at the height of the economic recession, the study revealed. CEOs forced from office significantly underperformed those leaving on their own terms and this was obvious in 2009 when chiefs departing on a planned basis delivered median market-adjusted shareholder returns of 6.0 per cent compared with -3.5 per cent for terminated CEOs.
Restructuring
Ultimately, it was organisations with unsustainable business models that collapsed first. For most companies left standing, 2009 was the "Year of Survival" as the global recession triggered CEOs' restructuring plans after years of economic boom. But most were dissatisfied with the strategy, management, and processes that followed the crisis, according to the 2010 CEO Census Middle East study conducted by global executive search consultancy firm Stanton Chase.
"Restructuring" became the new buzz word as companies panicked at the onset of the crisis. Desperate times call for desperate measures and firms were in a frenzy of cutting costs, firing employees, clearing stock, dealing with debtors who could not pay up, and trimming the budget, CEOs said.
Others took a step back and marched against the herd, increasing marketing costs, investing in new technology, diversifying products, and hiring people to head penetrations in new or growing markets.
Reviewing the results of their restructuring efforts in 2010, local CEOs say the biggest challenges today are managing cash flow and liquidity, tracking debtors, attracting business, getting funding, and motivating employees. Breaking into new markets and accessing reliable market information were also concerns.
"The main issue is cash and credit: giving credit to customers and cash flow between banks, customers, distributers, and companies. As long as those two elements are managed properly then growth is to be had and you can throw the dice," said Patrick Hayati, Managing Director for Emerging Markets of Belkin, a connectivity solutions company. He added that customers no longer have easy access to credit which makes it harder to do business because of drying liquidity.
Hayati said his company is "more stringent" now about its own credit lines and investments as the "field narrows" to fewer customers.
CEOs are also getting tough on their debtors and strictly following up on payments at a time when no fils can be spared.
"In previous years we were more flexible on repayments, we had longer follow up periods, and let things slip up sometimes, but now we have stronger procedures in place," said Alexander Rauser, CEO of Connect, the digital media arm of branding agency Omnia. "We are harder on going out there and talking to debtors and being stricter on our policies. It's not an easy task."
For companies in the badly-hit real estate sector, attracting business is another Herculean task. Laura Martorano, CEO and founder of property portfolio managing firm Leo Sterling Real Estate says it is increasingly difficult to book business and sustain operations so companies need reserve cash to stay afloat, adding that funding is a "major topic" in management meetings.
"We are not at a good time, people were standing in queue and buying right and left. But buyers now are more educated and have the luxury of waiting and observing the situation in the market," she said. "Has it declined? Most definitely, yes. Has it eliminated the possibility of revival? No."
For Shahzad Ahmad, CEO of Gigaset Communications in the Middle East, Africa and India, the issue is inspiring employee confidence in a volatile economy. "The biggest challenge is creating a positive mindset where people can perform fearlessly without uncertainty. We try our best to create that and it reflects finally in your numbers," he said. "But numbers are just numbers. To get them, your employees and customers must believe in the product and company plans."
The Stanton Chase report suggest the break of a new era, "new normal", where companies that survived 2009 must reset their priorities and reevaluate their target achievements in 2010 to advance.
There is a trend among boards to hire insiders to lead the company 80 per cent of the time since 2000, given the average 2.5 per cent in market-adjusted shareholder returns, compared to a mere 1.8 per cent for outsider CEOs, according to the Booz and Company report. There's a tradeoff between the allies and contacts an insider brings versus the objective perspective of an outsider.
In this "new normal", meeting even basic board requirements is a delicate balance.
Local CEOs say their boards require company stability, longevity, double digit growth, maintaining or gaining market share, staying within the budget, chasing receivables and reaching target revenue
"Double digit revenue growth, in terms of past performance, is not considered outstanding," said Xerox Emirates General Manager Andrew Hurt, who doubled company revenue to three-digit figures between 2006 and 2008. "But in the new world, double digit and high double digit growth is very good."
Ahmad said reaching target revenue depended on watching figures.
"We are looking at our margins very carefully, it's the name of the game now. Cash management is important because it is very scarce now," he said, adding that he is cutting costs by travelling on economy class and taking short trips. "You have to be a leader and walk the talk. What we say, we do. Your board must believe in you and you have to show what you say."
Rauser said his board was not expecting "massive growth" but asked him to "phase out the recession" figures.
Belkin board directions evolved over the course of the crisis, said Hayati. "They went from ‘don't let it affect us too much' to ‘survive,' to ‘gain market share."
The question is what form does the organisation take once it emerges from the crisis? For Hayati, the answer is aggressively increasing market share and expanding in new and growing markets, he said. Competition was fierce among large corporations to get the biggest share of the market pie. Khwaja Saif Al Deen, Senior Director of Sales for India, Middle East, Africa, and Turkey and regional leader for the hard drive manufacturer Western Digital said his company grew 62 per cent and sold 5.1 million hard drives in the first quarter of 2010.
"At a minimum, we have to maintain our market share and the more the merrier," said Saif Al Deen of his board's expectations. "It was a clear message: We can't let go our position in the market."
Pressure
Local CEOs agree that the pressure is on now to deliver better results and meet board expectations in a shorter period. "I think there is pressure in general to be more reactive and flexible with the whole business. It just shows how business works at the moment. We feels it's about making quick decisions to get the business ahead," said Rauser. "There is definitely pressure to turn things around faster."
Hayati sees an advantage to this whirlwind of action. "It's not necessarily a bad thing. The Middle East is a fast-paced market and these difficult times keep us all on our toes. It's good to be nimble," he said. "The mentality of long-term took a back seat to short-term and survival, but now organisations are discussing medium to long-term [prospects]."
For Ahmad, a little worrying is a good thing. "The moment you start worrying about your job, you are going to do a good job," he said. "The sword is always on your head, that's the way organisations work today, there's no permanent employment anymore."
For small businesses this pressure comes at a higher cost. Saeed Hejazi, Founder and Managing Director of local online shopping website Nahel.com said a start-up has to be even more cost-conscious and conservative in spending. He had to make sacrifices for the company's survival and did not give himself a salary for months to ensure the budget was not overstretched, he said.
2010 outlook
If 2009 was the ‘Year of Survival' then 2010 is the ‘Year of Consolidation'; a time to focus on growth; strengthen foundations and reset priorities, local CEOs say. For Martorano 2010 is the "Year of learning yet again". "People have short-term memories unfortunately. Remember the Hong Kong Market crash in 98-99? Those were hard times. Naturally we expect similar trends in the future."
What is your business sentiment? Have you had to alter it in the wake of the global economic downturn?
