IB Business Management HL 3.4.1 Purpose of Accounts Questions

Recruiting a new CEO
A company can spend a large amount of money to recruit a well-known and successful Chief Executive Officer (CEO) from outside the organization. However, recently published research suggests that recruiting externally is not only costly, but it is also risky, disruptive and demotivating.
Two long-term studies of 36 large public limited American companies found the following:
- The companies that promoted CEOs internally performed better than those that recruited externally.
- "Outsider" CEOs (recruited externally) have a significantly higher failure rate than "insider" CEOs (recruited internally). 40 % of "outsider" CEOs stayed for two years or less.
- The average financial reward package for "outsider" CEOs, including salary, bonuses and profit-related incentives, was 65 % higher than for those appointed internally.
- "Outsider" CEOs feel empowered to impose rapid change and to assert their authority on the company, even before they really understand the organizational culture. The arrival of an "outsider" CEO is often quickly followed by the departure of senior managers.
- "Outsider" CEOs are very good at rapid cost-cutting and eliminating unprofitable products/ activities, a skill that is very valuable when a competitive advantage needs to be gained or restored in a competitive environment.
Apple, Dell ${ }^{\mathrm{TM}}$, Microsoft ${ }^{\circledR}$, Intel ${ }^{\circledR}$, McDonalds ${ }^{\circledR}$ and Nike ${ }^{\circledR}$ are successful American companies that appointed CEOs internally between 1998 and 2007.
A comparison of average performance indicators between 1998 and 2007 is shown below:

Some critics of the two American studies argue that companies promoting CEOs internally usually have a strong corporate culture and are already efficient and profitable. These critics also argue that the performance indicators in the table do not measure the exact contribution of individual CEOs.
(C) The Times 04 2013]

Explain the importance of earnings per share to a shareholder.