The ITV Saga....

There are endless stories in the papers about the search for a new CEO at ITV. But there is very little questioning of whether it really needs a big name. I've been addressing that in my Money Week column this week....

ITV is providing more entertainment off-screen than it is on – and certainly more laughs. For the last few months, the broadcaster has been keeping the City amused with a search for a new chief executive and chairman that has more plot twists than Emmerdale, more failed auditions than the X-Factor – and now seems to have been running for longer than Coronation Street.
Last Monday, the broadcaster announced that John Cresswell, currently its chief operating officer, would become its interim chief executive, although he would leave as soon as someone was found to fill the job permanently.
At the same time, Michael Bishop, the founder of the British Midland airline, said that he wasn’t interested in becoming chairman of the company, as did Sir Crispin Davies, the widely respected former chairman of Reed-Elsevier.
The executive chairman, Michael Grade, has already said he will leave the company, and ITV has spent the last few months embarrassingly courting a series of high-profile successors. Tony Ball, the former boss of the BSkyB, was in the front-runner for a while, until his demands for a multi-million pound compensation package became too much for the board to stomach. Names such as Sir Christopher Gent, the former Vodafone boss, and Sir Christopher Bland, the former BT chairman, have been linked to the chairmanship.
And yet, for all the apparent chaos, ITV may well be doing the stock market a big favour. In the last decade, British companies, and the shareholders that at least nominally run them, have become enthralled to the myth of the heroic CEO. They have allowed themselves to be bamboozled into believing that a single person can make a huge impact on the future of the business, and that it is worth paying tens of millions to secure the right man or women.
What they may learn from the ITV debacle is that it doesn’t matter that much who you appoint as CEO. In most cases, it would be far better to make a competent internal appointment, pay them modestly, and let them get on with the job.
ITV certainly has more than its fair share of problems. It called the development of digital, multi-channel television wrong, and made a hash of its own attempts to get into pay-TV. What was once accurately described as a license to print money has been turned into permission to lose it. The cost of making the new dramas and sitcoms, and acquiring the rights to sporting events, that will pull in the viewers escalates all the time. But it no longer has a monopoly on television advertising, and a deep recession has hit the ad market hard, leaving ITV squeezed on all sides. In 2008, the company lost £2.5 billion.
Even so, it is a mistake to imagine that a single chief executive can sort that out overnight --- and it is mistake that too many big companies now routinely make.
Whenever a company gets into trouble, the cry goes up from shareholders, the bankers, and of course the media, for a new CEO to be drafted in. The head-hunters get to work, and a new boss is found, usually at vast expense – we’ve seen it as Sainsbury’s, at Marks & Spencer and at countless other companies. Indeed, we saw it last time around at ITV, when they drafted in Michael Grade from the BBC. It is one of the reasons why CEOs are now routinely so well paid – the average FTSE boss is now paid more than £5 million a year, and the FTSE boards in total cost more than £1 billion collectively every year.
And yet, they are very rarely worth the money. Most companies face a fairly constrained set of circumstances. Their immediate outlook is determined by the nature of the product they sell, the state of competition, and the state of the economy. All of those are a given: a new CEO can no more change them than he can change the weather. Very rarely is there some big strategic move that will suddenly transform its prospects. Nor is there some whizzy change of direction that can turn a failing organisation into a successful one. Indeed, the attempt will often do more harm than good. What most companies need is an intense concentration on detail, and the patience to develop new products and markets: you don’t get that from a big name looking to make an instant impact.
ITV is a prime example. Its business has been overtaken by technology, and the ferocity of the competition from Sky. There is, however, nothing much that can be done about that now. There is probably a good business in there somewhere, although it will be a smaller and less profitable one than the old business. You don’t need to spend £40 million on a new CEO to discover that – you’d be better off paying £1 million to a competent insider, and spending the rest of the money on a couple of decent dramas.
Pretending that there is some magic wand that can be waved is a useful move for the CEOs themselves. It allows them to justify their huge pay packets: after all, to collect superstar wages you have to be a star. It is good for the headhunting industry, allowing it to justify monstrous fees. And it is good for the media and the City, which can use the speculation to whip up some interest in the shares.
But it is very rarely good for the company itself. Examine it closely, and probably the only FTSE chief executive of the last decade who could be argued to have made a real difference to his company was Lord Browne at BP: he pulled off some big acquisitions when the oil price looked bombed out for a generation. Most of the rest could have been safely swapped with someone else without anyone apart from their secretaries really noticing.
In truth, of the £1 billion paid to FTSE boards every year, at least £900 million could more usefully be paid back to shareholders in higher dividends. They simply aren’t worth the money – and ITV may well be company that finally drives that point home to shareholders.