Identifying Top Management Changes

The names (NAME) and the type of position (E/N), i.e. executive or non-executive, of each company’s Chief Executive Officer (CEO), Chairman (CHAIR), and group

Managing Director (MD)-wherever applicable- were manually recorded from the

September issue of the PriceWaterhouseCoopers (PWC) Corporate Register

(Companies Section). This procedure was repeated for each September edition of the PWC Corporate Register from 1990 to 1998.

The above data collection process was particularly time-consuming and labour- intensive. Up to now information regarding the composition o f the top management teams of UK listed companies has not been available in a format that enables data processing, i.e. electronic form. Consequently, the current thesis has made a substantial contribution in the mapping of senior management changes by constructing a unique data set that can be utilised as the basis of future investigation of several issues related with executive turnover.

Moreover, besides the PWC Corporate Register a number of other sources had to be used in order to supplement the data. In particular:

a) Data for many companies was not found in the PWC Corporate Register because they existed under a different name. Through Changes of Names 1965-1998 (1999) it was possible to identify those companies and then by referring back to the PWC Register to fill in the missing information.

b) As already mentioned, data for a number of companies was not found in the PWC Corporate Register for the whole period under investigation (i.e. from 1990 to 1998). The reason for that was twofold: a) companies were not yet listed in the London Stock Exchange and/or b) companies did no longer exist because of various

reasons such as take-over, merger, liquidation, receivership, etc. In these cases, the combined use o f Datastream and LSPD made it possible to:

• Locate those companies that were quoted on the London Stock Exchange later

than the year under investigation. Moreover, the term birth date (CBD) was used to denote the first date on which a stock exchange code number applied. Top management information was not entered for the years preceding the birth date.

• Identify dead companies and the reasons for their death, where applicable.

LSPD, in particular, provided information on the death date (CDD) of companies that ceased to exist at any time up to 1996 and Datastream provided information on the death date of companies that ceased to exist after 1996, since the former database does not cover that period. Top management information was not entered for the years following the death date.

c) In a number o f cases, data for the birth year and/or the death year was not available from the September issues. The main reason was that companies entered the Stock Exchange after the September issue o f the PWC Corporate Register was published or ceased to exist before that date. For these companies, missing observations were filled in by:

• Investigating the rest of the issues. The PWC Corporate Register was published

twice from 1990 to 1994 and quarterly from 1995 to 1998.

• Reading company accounts available from LASER D. In particular, through this

database it was possible to obtain information on the composition of the top management team of companies not available in the PWC Corporate Register issues and with missing years no earlier than 1993.

• Using the Extel Financial UK Quoted Companies — Annual Cards for those companies not available in the PWC Corporate Register issues and with missing years from 1990 to 1992.

This process resulted in a total of 1385 different top managers that were in office from 1990 to 1998. Consistent with the view that “our world is male-dominated”, female top managers account for less than 0.7% o f the total. Tables 3.1 and 3.2 illustrate a number of developments regarding the composition of top management teams in the UK. The first one presents the total number of CEO, Chairman and group MD positions by year. The second one presents the number o f executive and non-executive Chairman positions as well as the number of cases in which the company’s Chairman holds a combined role, i.e. he is also the CEO or the group Managing Director.

Table 3.1: Chairman, CEO and Group MD Positions by Year, Time-Period: 1990- 1998, Sample: Top 460 London Stock Exchange Firms

Year Chairmen CEOs Group MDs

1990 374 223 165 1991 386 223 177 1992 386 240 161 1993 390 256 130 1994 390 270 124 1995 394 281 114 1996 387 282 101 1997 380 284 84 1998 362 278 78 Total 3449 2337 1134

Tabic 3.2: Executive Chairmen, Non-Executive Chairmen and Combined Titles by Year, Time-Period: 1990-1998, Sample: Top 460 London Stock Exchange Firms

Year Executive Chairmen N on- Executive Chairmen Combined Titles 1990 269 105 108 1991 280 106 96 1992 253 133 82 1993 240 150 62 1994 214 176 47 1995 205 189 36 1996 176 211 33 1997 173 207 30 1998 155 207 21 Total 1965 1484 515

As already highlighted in Chapter 2, a comprehensive analysis of senior management changes in the UK should include departures not only from the CEO position but also from the positions of Chairman and Managing Director. This is mainly because, UK companies have gradually adopted the title “C hief Executive Officer’’ to signal the top corporate position. During the early years, alternative titles such as “Chairman” or "Managing Director” were actually more often used. The pattern that emerges from both tables confirms this argument. As shown in Table 3.1, the number of CEO positions has increased from 223 in 1990 to 278 in 1998 whilst the number of Group Managing Director posts has decreased from 165 in 1990 to 78 in 1998. In contrast, Table 3.1 demonstrates that there is no monotonically time-series trend in the total number of Chairman positions.

Nevertheless, a striking observation made from Table 3.2 is that the number of executive Chairmen has decreased by more than 42% over the period 1990-1998 whereas the number of non-executive Chairmen has increased by 97% during the same

period. This finding reinforces the argument that as the CEO title is increasingly used to denote the company’s leading executive, there is a shift in the Chairman’s responsibilities who now becomes less involved with “steering the ship” (i.e. run the company) and more involved with “setting the tone and blowing the whistle” (i.e. run the board and monitor the CEO).

Finally, according to Table 3.2, in 1990 108 (29% of the total sample) UK companies had a Chairman-CEO/MD dual position whilst in 1998 only 21 (6% of the total sample) companies kept these roles combined. Consequently, there has been approximately an 81% fall in the number of cases in which the positions of the Chairman and CEO or group Managing Director are held by a single individual. Bearing in mind that the first Code o f Best Practice in corporate governance published by the Cadbury Committee in December 1992 recommended that companies separate the two roles, evidence suggest that companies seem to have complied with these proposals (although it should be noted that, as shown, the declining trend had already started taking place prior to 1992). This is consistent with the results of Dahya et al. (2001) who report that prior to Cadbury, the Chairman of the board also held the position of top manager in 36.5% of the companies; after Cadbury, that fraction dropped to 15.4%.

Management changes were identified by comparing management team composition across years. That is, the identity of the three top managers by name over a nine-year window from 1990 to 1998 for each firm was followed. Top executive changes were identified based on the following assumptions:

a) Top management changes involving only reassignment of the three titles (i.e. Chairman, CEO and MD) were excluded. One of the main objectives of the current study is the investigation of an association between poor firm performance and forced CEO departures. Title changes are less likely to be related to poor performance and, excluding them should enhance the ability to detect a relation between firm performance and subsequent management changes. It should be noted, however, that the analysis includes 3 cases of title-reassignment. These are: a) A. Roddick, CEO of Body Shop who became Co-Chair; b) R. Montague, executive chairman of CTR, who was initially moved to the position of CEO and in a year’s time he was entirely removed from the company and c) E. Pountain, executive chairman and CEO of Tarmac who was demoted to non-executive chairman. In all three cases, top managers agreed to take a role with a lot less responsibilities whereas a new CEO joined the company.

b) In 134 cases two or even three persons shared the same position (i.e. joint positions). In these cases, a departure of any of the managers was regarded as one observation (even if the rest of the joint managers remained at the position).

c) Simultaneous departures (i.e. departures of two persons, holding different titles, on the same date) were treated as two different observations.

The following table presents an extract from the actual Excel data sheet that was used in the current analysis:

Table 3.3: Identifying Top Management Changes-Sample o f the Actual Excel Sheet ¡D S C O D E N a m e R o le I s s u e 4 I s s u e 6 Is s u e 8 1990 N /E 1991 N /E 1992 N /E [9 0 1 3 1 8 A A H C h a ir W M P y b u s E W M P y b u s E W M P y b u s E 9 0 1 3 1 8 A A H C E O N /A N /A N /A N /A N /A N /A 9 0 1 3 1 8 A A H G ro u p M D N /A N /A N /A N /A A W R e v e ll E 9 0 0 4 8 9 A B B E Y N A T IO N A L C h a ir W O A d a m s o n N W O A d a m s o n N C S T u g e n d h a t E 19 0 0 4 8 9 A B B E Y N A T IO N A L C E O P G B irc h E P G B ir c h E P G B irc h E 9 0 0 4 8 9 A B B E Y N A T IO N A L G ro u p M D N /A N /A N /A N /A N /A N /A 9 1 7 5 9 7 A E G IS G R O U P C h a ir P J S c o tt E P J S c o t t E P J S c o tt E 9 1 7 5 9 7 A E G IS G R O U P C E O P J S c o tt E P J S c o t t E P J S c o tt E 9 1 7 5 9 7 A E G IS G R O U P G ro u p M D N /A N /A N /A N /A N /A N /A 9 0 3 3 5 7 A G G R E G A T E IN D U S T R IE S C h a ir P P a rk e r N P P a r k e r N P P a rk e r N 9 0 3 3 5 7 A G G R E G A T E IN D U S T R IE S C E O R K e ttle E P W G T o m E P W G T o m E 9 0 3 3 5 7 A G G R E G A T E IN D U S T R IE S G ro u p M D N /A N /A N /A N /A N /A N /A [9 0 0 2 3 2 A L L IE D D O M E C Q C h a ir D H o ld e n -B ro w n E M C J J a c k a m a n E M C J J a c k a m a n E ¡9 0 0 2 3 2 A L L IE D D O M E C Q C E O R G M a rtin E A J H a le s E A J H a le s E 9 0 0 2 3 2 A L L IE D D O M E C Q G ro u p M D N /A N /A N /A N /A N /A N /A 9 0 1 3 9 3 A M S T R A D C h a ir A M S u g a r E A M S u g a r E A M S u g a r E 9 0 1 3 9 3 A M S T R A D C E O N /A N /A N /A N /A N /A N /A 1901393 A M S T R A D G ro u p M D A M S u g a r E A M S u g a r E A M S u g a r E ¡9 0 1 1 9 5 A R C A D IA G R O U P C h a ir R M H a lp e rn E J A H o s k y n s N J A H o s k y n s N ¡9 0 1 1 9 5 A R C A D IA G R O U P C E O R M H a lp e rn E L C o o k lin E J L H o e rn e r E 1901195 A R C A D IA G R O U P G ro u p M D L C o o k lin & P G P la n t E N /A N /A N /A N /A

Based on this extract and according to the remarks made above, examples of management departures are W.O. Adamson (Chairman of Abbey National) who left in 1991; R. Kettle (CEO o f Aggregate Industries) who left in 1990; D. Holder-Brown and R.G. Martin (Chairman and CEO of Allied Domecq respectively) who both left in 1990 and were treated as two different observations (see point c); and R.M. Halpern and P.G. Plant (Chairman/CEO and Joint Group MD of Arcadia Group respectively) who both left in 1990. Note that, Plant’s departure was treated as one observation although L. Cooklin - the other joint MD- did not leave office (see point b).

In total there were 711 top management changes identified from the database. Each of the thesis chapters is based on a sub-section of the total sample of top management changes. Specifically, Chapters 4 and 6 refer only to the Most Senior Executive

departures (a total o f 318 changes) whilst Chapter 5 includes only Chairman departures (a total of 309). The term Most Senior Executive is used to denote the top corporate position in each company, as the title “Chief Executive Officer” has only comparatively recently been used. The identification of the Most Senior Executive will be thoroughly discussed in Chapter 4. But in general, the Most Senior Executive for each company was taken to be the CEO if such role existed and if not the Executive Chairman or the Group MD.