Climbing the corporate ladder comes with risks…

Last week the Wall Street Journal published an article, “Finding a Cure for CEO-itis,” that we suspect was widely read and enjoyed, except perhaps by the CEO set. It touched on the same themes that we often write about after finding disclosures in SEC filings — increasing dollops of power and money handed to CEOs — as well as examples of them lapping up the “royal treatment” that comes in the form of lavish perks.

We regard the excesses of CEO-itis as a problem partly because publicly-held companies are owned by shareholders, not those executives who treat the company’s coffers like their personal piggy banks. It’s also a problem because when executives behave arrogantly, they often forget that a successful company reflects the toil of many.

But the path to a full-blown case of CEO-itis rarely happens overnight. Executives who are climbing their way to the top are increasingly showered with money and perks at the same time that they become more removed from the daily work and the workers whose efforts also bring in revenues.

In the past week, for instance, an 8-K filed by KBR, Inc. (KBR) reported that Ivor Harrington had joined the company as the Group President of Services. In addition to a $575,000 salary and a $400,000 signing bonus (although he has to stay for two years to get the whole signing bonus), KBR agreed to give him another $800,000 in restricted stock units and stock options. He’ll also very likely get more than that, because KBR has other executive bonus programs in which Harrington will participate.

Harrington is just one example of this: Today he’s a Group President, but in a few years he may become a CEO. However, the money and perks are already flowing his way at a good clip, and it’s understandable that a person in such a position might start believing that he’s worth every penny he gets. Of course, we’ve never met Harrington personally; and he may turn out to be the one executive who can best resist the siren song of CEO-itis. We certainly hope so, just as we hope that other executives who get hundreds of thousands or millions of dollars each year will be similarly strong.

It turns out that being strong and resisting CEO-itis might be in the executives’ best interests, too. Reporter Joann Lublin, who wrote the article, underscored yet another point, which is that:

“[CEO-itis] appears to occur when promising managers reach the corner office or other C-suite spots. Once infected, once-successful executives often underperform and put themselves at great risk of early exits, experts say.”

Thus, although it would be tempting to kick up one’s Brooks Brothers-tasseled heels once he or she is tapped to become a CEO, the wiser course (as well as the one that’s better for shareholders and the company itself) would be to fight the affliction with tooth and nail.

Image source: Missing leader, via Shutterstock


At footnotedPro, our subscription service exclusively for financial professionals, we identify early warning signs and hidden red flags well in advance of the market. For more information, or to inquire about a trial subscription, please email us.