WHEN a CEO is appointed to a company, his term should be no longer than seven years, and his final compensation upon leaving should only be paid out a few years after he has officially stepped down.
This may be controversial to some, but for Frank Brown, dean of business school Insead, it would go a long way towards instilling a greater sense of responsibility among the company's top management and make sure that there is always a fresh perspective by having regular succession at the top.
'A five to seven-year period for CEOs is plenty. That would create an environment where CEOs would actually have to build a team with succession in mind,' said Mr Brown in an interview with BT.
The other suggestion he gives is to make sure that the CEO's final compensation is payable only three years after he has left, to make sure the eventual amount is partially determined by how well the company is performing after the new team has taken over.
'This incentivises the CEO to put somebody good in place, who's going to do a proper job of running the organisation,' said Mr Brown, a non-academic who made headlines in 2006 when he was named the first business executive to become Insead's dean in its 50-year history.
'A lot of people may not agree with me, but the fact is that having a CEO in place for 10 or 20 years is really creating a culture of fear in the organisation, and a situation where the CEO is desperate to hang on, as opposed to doing the right things for the long-term good of the company.'
In Mr Brown's view, one area that young employees should do more is to ask 'tough, hard questions' when they sense something is amiss in the company, rather than hold back for fear of being reprimanded.
'People do know how to ask the right questions, but they don't have the confidence to do so,' he said, pointing to examples such as the recent Bernard Madoff saga. Madoff was arrested this month after confessing to two sons that his investment advisory business was a 'giant Ponzi scheme', that cost clients US$50 billion.
'My message is that people need to remember the basic golden rule - perspective. If you see something that looks too good to be true, it is. There is a problem there, and we just don't have enough people that are asking the tough questions,' he said.
In this turbulent environment, business schools such as Insead have a greater role to play in helping to provide that perspective to their students, to make sure they are ready to face the next set of challenges in life after graduation.
This could be done in learning not just from case studies from the past, but from current affairs too. This, he added, would make the programme as fresh as possible and allow students to hear from one another about issues and events that actually affect their lives at that very moment.
On Insead's part, it expects to see greater demand for its MBA programme, while its executive education courses are likely to see a moderate impact in Singapore due to companies scaling back in the wake of the crisis.
The key for Insead, he said, was to send the message that continuous training and education is the way to go in an economic downturn.
'In the worst of times economically, what organisations want to do is to retain their top people. One way to do that is by giving them training, and in a downturn it's not a bad time to do so. It's less expensive than giving a big raise or stay bonus to their best people,' said Mr Brown.
This article was first published in The Business Times on December 29, 2008.
