The Fortysomething Killing Fields
In the Taiwanese business world, the people at the top often topple. What factors fill executive life with such peril? And what lessons should Taiwan’s management class learn?
The Fortysomething Killing FieldsBy Sara Wu
From CommonWealth Magazine (vol. 365 )
Last year, nearly 200 CEOs of Taiwanese companies experienced career upheavals. Some were promoted or recruited by other firms, while others stepped down from their posts or resigned.
Taiwan has now joined the global fight for survival, featuring intense competition and shorter CEO tenures. Driving this battle are 40- to 50-year-old movers and shakers in the physical and professional primes of their lives. So why is there such a high rate of attrition once they become CEOs? What kind of killing field is this?
High CEO turnover is a global trend. The American quarterly magazine Strategy + Business publishes an annual report on CEO succession, and in 2005 the global turnover rate for CEOs was the highest ever at 15.3 percent, 70 percent higher than 10 years before (See Table 1).
The magazine's study attributed the high rate of CEO turnover in the last two years to the effectiveness of “a long wave of governance reform.” With corporate boards increasingly beholden to shareholders, they are more aggressively supervising top management and quicker to pull the trigger on CEOs who underperform. Instead of stepping down at retirement age, more than half of the outgoing CEOs left office involuntarily, ousted because of poor performance or mergers.
The high turnover trend is just as prevalent among Taiwan's CEOs, but it is fueled by different factors from those seen in other parts of the world.
In Taiwan's human resource chain, there is a surplus of mid-level employees but a dearth of top-level executives.
According to manpower forecasts put out by Taiwan's Council for Economic Planning and Development, with university enrollment exceeding 90 percent, the supply of mid-level personnel will far outpace demand. The average entry-level pay for college graduates has remained unchanged at about NT$25,000 per month for the past 10 years, the lowest of the Four Little Dragons of Asia (Taiwan, South Korea, Hong Kong and Singapore). In contrast, there will be a shortage of high-level personnel. The CEPD estimates that from 2005 to 2015, Taiwan will need 45,000 top-level professionals and managers per year. With businesses facing this urgent demand, executives in their 30s and 40s have been drawn into the fray. Many have become CEOs, creating a new management class.
The World's Most Stressed-out CEOs
Having the opportunity, however, does not necessarily imply survival. Taiwan's executives face extreme internal and external pressures.
Grant Thornton's 2005 International Business Owners Survey, which questioned 6,300 business owners in 24 countries, found Taiwan's business owners to have the highest stress levels in the world, with 69 percent of those surveyed in 2005 experiencing burnout. The report divided managers into five categories: high growth, high stress increase; high growth, low stress increase; low growth, high stress increase; low growth, low stress increase; and average growth, average stress increase. Taiwan fell into the least desirable category – low growth, high stress increase. Citing the Grant Thornton report, Inc. magazine told small and medium business owners: “You think you are anxious? Be glad you're not doing business in Taiwan.”
Taiwan's low growth market has contributed to high CEO stress levels. In terms of domestic demand markets, the fast food, automotive, financial, luxury item and consumer goods sectors have all entered a fiercely competitive environment where mere survival is a struggle.
Joseph Han, the newly appointed managing director of Yum Restaurants (Taiwan) Co., Ltd., said that Taiwan's market development has recently entered a phase that bears little resemblance to the past decade and is markedly different from China's high opportunity, high growth environment. “To a CEO, the greatest challenge is how to deal with a mature market,” Han observes.
Because Taiwan's markets are shrinking or stagnant and highly competitive, companies are forced to engage in zero-sum games where one company's success is another's failure.
Comparing the two economies across the Taiwan Strait, China has averaged 9.5 percent annual growth over the past 20 years. To top-ranking executives, China provides a massive stage where “trends create heroes” ?w where stars emerge out of the country's vibrant but turbulent economy. Taiwan, on the other hand, is a place where “heroes create trends” ?w where strong leaders are needed to turn the prevailing environment in their favor. Executives are required to produce strong results under adverse circumstances.
Pressure from Investors
Another constant source of stress is capitalism's elaborate statistical tabulation of daily share prices, quarterly conferences and annual forecasts, which keeps CEOs and executives on their toes and compels them to satisfy the earnings expectations of investors.
CEOs and executives carry the burden of the expectations of financial circles and institutional investors, who are constantly weighing CEOs' performances, evaluating the effectiveness of their strategy and achievements. The moment results decline, these investors pull their funds out of the company or the local market.
One finance manager at an IC design company with a high share price describes his main job responsibility as investor relations. “Analysts' reports are pointed and incisive. If they don't agree with your strategy, they'll give the stock a ‘sell' rating,” he says.
“If the company's results are not good, it's best to report them honestly. Institutional investors don't like surprises. High Tech Computer's shares plunged recently because the company failed to provide investors with any earnings guidance that income would fall short of estimates. Institutional investors sold off their shares.”
Charlie Wu, the 48-year-old manufacturing center vice president of Chipbond Technology Corporation, argues that profitability and stress are closely linked. “The source of high-tech managers' stress is managing the operation. Managers face heavy stress whenever the company isn't making money.”
In the high-tech sector, economic cycles are another major source of pressure, and one for which there is no answer. As a contract manufacturer providing IC packaging and testing services, Chipbond is especially vulnerable to LCD panel economic cycles. Wu contends that users of panels in Taiwan's optoelectronics industry cannot accurately forecast demand in their end-user markets and are less than cooperative with their supply chains. The result is asymmetric information, with supply frequently outpacing demand.
Wanted: Innovative Thinking
NationalTaiwanUniversity EMBA professor Chia-shen Chen believes Taiwan's executives have two major weaknesses. First, they fall short on innovative thinking. In Taiwan's high-tech sector, for example, the usual thought process is focused on large-scale production and cost-cutting. Innovative methods are nowhere to be seen, he contends.
“Many people choose the cheap solution, the quick solution. Using price to compete has become the fastest and most effective choice,” Chen says.
For many years, the “mental model” followed by mid- and high-level managers in the technology sector has been centered on building expertise in manufacturing efficiency. There is a real scarcity of executives who have the ability to create new business models.
The second major weakness of Taiwan's executives is an extreme lack of cross-cultural management strength when dealing with people of different ethnicity. This weakness has only grown more obvious as Taiwan has rapidly moved toward internationalization.
Wanting: International Experience
According to the 2006 World Competitiveness Yearbook compiled by the International Institute for Management Development in Lausanne, Switzerland, the quality of Taiwan's senior managers with international experience has fallen behind that of other countries. These executives would have trouble holding their own on a world-class competitive stage.
Taiwan also fares discouragingly compared to the other Four Little Dragons. In the category of ready availability of competent senior managers, Hong Kong ranked first in the world, while Taiwan was 26th. Hong Kong ranked 1st and Singapore 5th in terms of the international experience of senior managers, while Taiwan came in 21st. As for the attractiveness of the economic environment to high-skilled foreign workers, Hong Kong was 1st, Singapore 4th and Taiwan 33rd. (See Table 2)
The trend is even clearer in the financial sector. Taiwan has fallen behind Hong Kong and Singapore in terms of the availability of executives with finance skills, with Hong Kong ranking 3rd, Singapore 14th and Taiwan 29th.
Forty-three year-old Andrew Chen joined HSBC Investments (Taiwan) Ltd. two years ago as the company's general manager and was promoted in January 2007 to president because of his outstanding performance.
He is one of the few who have actual experience on the international stage. He recalled that when he was working at JF Asset Management (Hong Kong), he was the only Taiwanese among the researchers. Every member of the department performed excellently, and Chen came to realize that foreigners were highly skilled at expressing themselves, had the ability to think, and were able to see things from different angles.
In the two years since Chen became general manager, he has traveled to his company's London headquarters every November to report on the Taiwan branch's performance. All of the Asian managers are pitted against one another.
“It's agonizing, and you get angry at yourself, because you realize you're your own worst enemy. Why does everybody have the guts to promote their operating results and I don't, even though my performance was better than theirs?” Chen wonders.
Compared to Indians and Chinese who courageously sell themselves, Taiwanese tend to believe the boss will notice their achievements on his own.
“Who cares if you're an Easterner or a Westerner? HSBC is a global village. We tend to limit ourselves,” Chen explains.
EMBA professor Chia-shen Chen contends that Taiwan's secret worry is that many multinationals will move their headquarters or operation centers to China, leaving Taiwan's executives with even fewer opportunities to gain experience in an international company.
Big Companies Sneeze, Taiwan Catches a Cold
Executives now face the major external challenge of competing on a worldwide platform, closely linked to the pulse of global companies. When distant corporate headquarters hand down a policy, Taiwan immediately feels it, sometimes to the point where a company's name can change overnight.
Fortune magazine in January selected Philips CEO Gerard Kleisterlee as Europe Businessman of the Year and introduced his achievements in an article headlined “Lighting Up Philips.” He was selected because he wisely sold off the company's semiconductor division to focus on faster growing lines like consumer electronics, medical devices and lighting. Kleisterlee sold the company's semiconductor division last summer for US$10 billion to a consortium of private investors, sending Philips stock up more than 30 percent over the past six months to their highest levels since the tech bubble burst.
The CEO's strategy may have been successful, but the name of Philips Semiconductors changed overnight to NXP Semiconductors. The decision affected 8,000 Greater China-area employees of the 50-year-old company, which got its start in Asia in Kaohsiung, Taiwan and is now Asia's fifth biggest semiconductor firm.
NXP Semiconductors Taiwan-area general manager Marconi Jiang describes the challenges facing his company: “Spinning off was a good move, but employees hope to work at a well-known company. This brand has to reinvent itself, which is tough. When I say NXP, nobody has heard of it, but everybody knows Philips,” Jiang said.
Inadequate Training of High-level Execs
Nearly 200 CEO's left their posts last year. Aside from a minority who were promoted or handed over the baton to heirs-apparent, most were ousted or transferred because they failed to meet performance targets. The high turnover level is clear evidence of the state of attrition and the fierce competition executives face, but it also indicates that companies are not adequately training high-level managers.
Executive director of NationalTaiwanUniversity's EMBA program Chung-hsing Huang has observed the change in composition of the program's students over the last 10 years. In the past they were all company heads, but now the majority are mid- and upper-level managers mostly in the 40-50+ age bracket.
“In the past, company bosses came to study concepts,” Huang says. “Now, executives want to immediately hear answers that they can go back and apply, because they are anxious over the challenges they themselves are facing.”
The forties are usually the prime of one's life, but it is hard to avoid setbacks on the battlefield. Unless one willingly surrenders, however, there is always a way to rebound after taking a fall and an opportunity to revive one's motivation.
Great leaders need to steel themselves through many trials and tribulations. Taiwan desperately requires talented people who embrace the spirit of “rising up from adversity,” because today's Taiwan needs heroes who can turn around a difficult situation.
Translated from the Chinese by Luke Sabatier