The Great Wartime CXO Resignation

Prakat · April 15, 2023

The Great Wartime CXO Resignation

So Nykaa is going through interesting times.

Five executives at India's Nykaa have resigned, a spokesperson said on Friday, the latest departures at the beauty company amid intensifying competition and a falling stock price.

Among the exits are Chief Commercial Operations Officer Manoj Gandhi, Chief Business Officer of fashion division Gopal Asthana, and Chief Executive Officer of wholesale business Vikas Gupta - all executives of Nykaa. Shuchi Pandya, a vice president of Nykaa fashion division's Owned Brands business, and Lalit Pruthi, a vice president of finance at the fashion unit, have also resigned.

A Nykaa spokesperson told Reuters it sees "some of these mid-level exits as a part of the standard annual appraisal and transition process, wherein, people exit due to performance or to pursue other opportunities."

"Voluntary and involuntary exits are expected in a fast-paced, growth-focused, consumer tech organisation with over 3,000 on-roll employees," the company said in response to queries from Reuters on the executives' departures.

Five executives at Nykaa resign in latest departures, Mint

It’s not just Nykaa, though.

Just last week, Dale Vaz, Swiggy’s Chief Technology Officer, also stepped down from the company, following the footsteps of Karthik Gurumurthy, another senior Swiggy executive who headed Swiggy's quick commerce business Instamart.

There’s also Zomato, which saw four executive-level exits between November and January. I’ve written a bit about this earlier, in the context of why co-founders who get elevated to the role don’t share the vision of the original founders.

You may say that this appears to be a coincidence, but there’s another aspect to the pattern and that’s the timing of it—all of these companies lost their senior executives when they were going through an incredibly difficult time. Zomato’s stock was trading at Rs 72 (~US$1) in early November. By early February, it was down to Rs 48 (US$0.6)—close to it's all-time low. Nykaa is currently trading at Rs 126 (US$1.5), which is pretty much the lowest it has ever been. Swiggy has been steadily losing market share to Zomato, and by the end of March, the direction of the trend became more evident.

Three companies, all going through wartime, are losing their generals.

But why?

I have a theory.

Let’s dive in.

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Peacetime CXO/Wartime CXO

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While writing about why companies in a time of crisis were losing executive leaders, I found myself going back to a classic 2011 essay written by venture capitalist Ben Horowitz of Andreessen-Horowitz, titled Peacetime CEO/Wartime CEO.

You can read the essay here. It’s a bit cringey and unnecessarily machismo in parts, but if you can look past that, essentially Horowitz argues that companies going through challenging times require different management skills, different leadership styles, and even different ways of thinking. He draws out this distinction by contrasting how CEOs operate during peacetime, i.e., when the market is growing and the company has a significant advantage, and wartime, i.e., when the company is facing an existential threat.

A classic peacetime mission is Google’s effort to make the Internet faster. Google’s position in the search market is so dominant that they determined that anything that makes the Internet faster accrues to their benefit as it enables users to do more searches. As the clear market leader, they focus more on expanding the market than dealing with their search competitors. In contrast, a classic wartime mission was Andy Grove’s drive to get out of the memory business in the mid 1980s due to an irrepressible threat from the Japanese semiconductor companies. In this mission, the competitive threat—which could have bankrupted the company—was so great that Intel had to exit its core business, which employed 80% of its staff.

In my personal experience, I was a peacetime CEO for about 9 months, then a wartime CEO for the next 7 years. My greatest management discovery through that transition was that peacetime and wartime require radically different management styles. Interestingly, most management books describe peacetime CEO techniques while very few describe wartime. For example, a basic principle in most management books is that you should never embarrass an employee in a public setting. On the other hand, in a room filled with people, Andy Grove once said to an employee who entered the meeting late: “All I have in this world is time, and you are wasting my time.” Why such different approaches to management?

In peacetime, leaders must maximize and broaden the current opportunity. As a result, peacetime leaders employ techniques to encourage broad-based creativity and contribution across a diverse set of possible objectives. In wartime, by contrast, the company typically has a single bullet in the chamber and must, at all costs, hit the target. The company’s survival in wartime depends upon strict adherence and alignment to the mission.

When Steve Jobs returned to Apple, the company was weeks away from bankruptcy—a classic wartime scenario. He needed everyone to move with precision and follow his exact plan; there was no room for individual creativity outside of the core mission. In stark contrast, as Google achieved dominance in the search market, Google’s management fostered peacetime innovation by enabling and even requiring every employee to spend 20% of their time on their own new projects.

Peacetime and Wartime management techniques can both be highly effective when employed in the right situations, but they are very different. The Peacetime CEO does not resemble the Wartime CEO.

Peacetime CEO/Wartime CEO, Ben Horowitz

This got me thinking. Horowitz has written about the difference between peacetime and wartime CEOs because the CEO has the greatest influence on the strategy, urgency, and the mood of the company, and it makes sense to focus on the distinctions.

But does a similar construct exist for the second-rung of leaders? Is there a distinction between how CXOs need to operate during wartime and peacetime?

I couldn’t find anything, but I did observe a pattern.

When a company moves from peacetime to wartime, CXOs, more often than not, choose to do one thing above all—leave.

To illustrate this, we only need to go back to the last time that companies in India entered wartime—2016. Thanks to a combination of factors, including the entry of massive global players like Uber and Amazon in India, combined with the entry of huge VCs like SoftBank, other VCs scaled down funding of startups that year. There was immense uncertainty, and nobody knew who to back because nobody knew who was really doing well. So they decided to sit back and let the companies figure it out. It was nowhere close to how bad things are right now, but if you go back and read stories from back then, you’ll stumble across the same tired clichès. Profitability over growth. Time of unlimited capital is over. Sustainable business model. Yada yada.

And how did a chunk of India’s CXOs respond?

Well…

The movement back from startups to large established companies has started. Several CXOs from ecommerce and startups are on their way back to large MNCs and established Indian conglomerates and there are several others who are on the lookout, according to six executive search firms specialising in senior-level startup searches.

Lack of innovation opportunities, culture misfit, roles becoming redundant are among the reasons that have prompted senior leaders from Flipkart, Jabong, Housing.com, Ola and others to move back to traditional established companies, the search executives said.

Why senior executives are quitting startups to move back to traditional established companies, The Economic Times

As the story notes, some of these exits can be attributed to the fact that companies decided to do some cost-cutting and slashed leadership roles. Some of it can also be attributed to incompetence and a lack of fit.

But I think that still doesn’t explain everything.

Instead of asking why CXOs leave companies during wartime, it’s perhaps better to ask why would they choose to stay in the first place?

I think this is the heart of the answer.

CXO incentives have been created and attuned to maximise results for the company during peacetime, not wartime. This is what makes them difficult to retain during wartime, because from their perspective, there’s little reason to stick on.

Take CXO compensation. Over the years, CXO compensation has been changing in several ways, but directionally, it has been going towards uncapped variable compensation linked to growth, and more stock options (which companies call wealth creation opportunities). The working theory is that this creates incentives for CXOs and leaders to stick on longer, at least until their stock options vest. It does, but what happens if the stock itself starts to feel like it’s not that valuable? Maybe because the company has hit a ceiling on its valuation, or because public markets are simply going to take time to realise the value. All those stock options look noticeably less attractive when there are no exits in sight, no IPO on the horizon, and future funding rounds look impossible for years.

Combine this with the fact that companies in wartime usually wind down their big bets and “fun” businesses, and prefer to be conservative and stick to core businesses, I imagine things start to get boring for CXOs who are easily seduced by the next big thing.

That’s probably why there are no wartime CXOs. Only peacetime CXOs.

I’ll end with this final example by Gergely Orosz, writer of Pragmatic Engineer, a great newsletter I recommend, about the difference between wartime and peacetime in your company.