“The predicament of modern C.E.O.s may seem surprising, given their prominence and lavish compensation”

Business professors once talked about “the imperial C.E.O.,” but, increasingly, we’re in the era of what Marcel Kahan, a law professor at N.Y.U., calls “the embattled C.E.O.” He told me, “Big shareholders and boards of directors have more power, and are more willing to use it. And C.E.O.s have been the net losers.” The breakdown of the old order began more than thirty years ago, but things have accelerated since the turn of the century. The Sarbanes-Oxley Act, passed in 2002, required greater disclosure to investors, and increased the independence of corporate boards. “In the old days, boards were often loyal to the C.E.O.,” Charles Elson, a corporate-governance expert at the University of Delaware, told me. “Today, they’re more loyal to the company.” The rise of activist investors—who campaign aggressively for change when they’re not satisfied with performance—has exacerbated the trend. One study found that when activist investors succeed in winning seats on the board of directors the probability that the C.E.O. will be gone within a year doubles.

The predicament of modern C.E.O.s may seem surprising, given their prominence and lavish compensation. Top executives everywhere are paid more than they used to be, and the U.S. has led the way; American C.E.O.s earn, on average, two to four times as much as European ones and five times as much as Japanese ones. Yet it’s precisely these factors that make C.E.O.s vulnerable, because the expectations for their performance are higher. “If you’re paid tremendous amounts of money to make things go right, people naturally feel that you should be held accountable when things go wrong,” Elson says. In that sense, the increasing willingness of boards to fire the C.E.O. is actually the flip side of a fetishization of the position that began in the eighties. In Ralph Cordiner’s day (and in Japan maybe still), belief in a C.E.O.’s power to transform a company was limited. But today’s cult of the C.E.O. is founded on the belief that having the right person at the top is the key to success—from which it follows that a failing company should show its boss the door.

C.E.O.s themselves don’t seem to have fully internalized this new regime. “Some C.E.O.s have a very lofty opinion of themselves, and when they’re told they have to go they’re almost always shocked,” Elson says. … But this is really poetic justice at work. In the past thirty years, C.E.O.s have remade American companies as lean, mean machines that put shareholder value above all else. To do that, they’ve insisted on greater accountability for performance and have broken implicit social contracts, such as the promise of lifetime employment. It’s only fitting that they’re victims of the same logic.

James Surowiecki, “Uneasy Lies The Head”, The New Yorker (7 November 2016), 19.