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Streetwise: With CEOs as a target, Manzoni’s exit was inevitable

John Manzoni, president and CEO of Talisman Energy.


Canadian chief executive officers are going to need chiropractic coverage to deal with the neck pains from looking over their shoulders.

Five of Canada's biggest companies have replaced their CEOs so far in 2012. The corner offices at Barrick Gold Corp., Kinross Gold Corp., Nexen Inc., Canadian Pacific Railway Ltd. and now Talisman Energy Inc. have new tenants. All five companies are members of the Standard & Poor's/TSX 60 index, which tracks the most powerful group of publicly traded corporations in the country.

That is the kind of attrition you expect from National Hockey League coaches – not from the upper reaches of Corporate Canada.

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What is behind the great massacre of 2012? In a time of mediocre returns, those who advise boards had long warned that investors were about to become more activist, and put management and directors on a shorter leash. It is happening.

The spillover effect of Canadian Pacific is hard to overstate. The proxy battle that began in late 2011, and ended with the resignations of several board members and CEO Fred Green, signalled that directors who dithered on changing strategy or chief executives could find themselves out of work as well. The Kinross, Barrick and Talisman CEO changes all came swiftly after the conclusion of the CP drama.

At Talisman, a savvy board could sense the mood of the market. There was no open revolt by shareholders, but the potential for one was there, so the board replaced CEO John Manzoni. It was unexpected, but in retrospect, not terribly surprising.

Hedge fund West Face Capital had suddenly appeared on the shareholder list, buying up almost 11 million shares in the second quarter. West Face had played a behind-the-scenes role in pushing for the sale of underperforming oil company Petro-Canada in 2009, and stirred up change at companies such as Maple Leaf Foods Inc.

West Face had yet to launch any sort of activist campaign. But the firm has the tools, and the experience, to start one. The Ontario Teachers' Pension Plan, which also agitated for change at Petrocan, has also been increasing its stake in Talisman. Maybe it was prelude to war, maybe it was just coincidence. But it was ominous.

By conventional measures of Mr. Manzoni's success, there were few reasons for shareholders to want him to stick around. Pick a measurement and Talisman could usually be found well down the list of oil and gas producers. For shareholders, a 24-per-cent drop in the stock price over the five-year period ended Aug. 31 was reason enough to be unhappy. So Mr. Manzoni "agreed" to leave almost five years to the day after he took the job.

What's the right amount of rope to give a CEO who is not living up to shareholders' demands? Boards have to balance looking reactionary and impatient with not allowing an underperforming executive to drag a company down.

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The average tenure of a CEO is steadily in decline, that much is certain. The Conference Board estimated that in the U.S. last year, the average CEO had 8.4 years of service in the job, down from 10 years in 2000.

Tye Burt got a little more than seven years at Kinross. Aaron Regent got just over three years at Barrick. It was the same for Marvin Romanow at Nexen. CP gave Fred Green six years, and would have given him more had Mr. Ackman not engineered wholesale change.

At the short end of that spectrum, Mr. Regent's ouster seemed altogether too rushed, the result of a restless board focused on the share price and unwilling to give Mr. Regent the time to solve some of the perceived problems at the company.

At the long end, Mr. Green got more than enough years to try to prove his plan would work. When his plan failed to improve CP's bloated cost structure, Mr. Ackman was able to tap a serious well of discontent.

At Talisman, the board split the difference. Mr. Manzoni had plenty of time to turn around Talisman, but the board correctly read that he was outstaying his welcome.

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