The answer is multifaceted.
CEOs keep leaving.
In the first quarter of 2019, 416 U.S. CEOs exited—the highest figure for the period since executive placement firm Challenger, Gray & Christmas began reporting data in 2002. It was not a fluke: The 2018 total for CEO departures was the biggest turnover wave since the 2008-2009 recession.
The U.S. trend complements what seem to be shrinking CEO tenures worldwide. In Australia, the number of CEOs who had been in their role for less than five years rose from 2017 and 2018, according to a Robert Half study of ASX200 companies. In the U.K., the average length of CEOs’ tenure at FTSE 100 companies slipped from 5.5 years in 2016 to 5.2 years in 2018, Robert Half found.
What is going on exactly? The answer is multifaceted. “Companies are grappling with changing consumer behavior and new technologies disrupting almost all industries,” Andrew Challenger, vice president of Challenger, Gray & Christmas, said in an April press release about U.S. turnover. “A difficult business environment, with economic uncertainty, is causing boards to make changes in their leadership ranks.”
“A difficult business environment … is causing boards to make changes in their leadership ranks.”
Challenger, Gray & Christmas
When a board pushes a CEO out, it often bodes well for the company’s future—albeit not immediately. A study published last year found that the “business problems and public disagreements surrounding the departure often depress the company’s share price for the 12 months after the turnover,” Fortune reported.
But three years after the change, the company’s stock performance was back on par with industry peers. “Firms appear to become more focused on fewer business segments and become bigger players in those segments after the turnover,” wrote Kuntara Pukthuanthong, lead author of the study and a University of Missouri finance professor.
Change, as they say, is hard. But boards would do well to trust their strategic instincts and bring in a new CEO who is fully aligned—even if the short-term effects of the change are not entirely pleasant.
This article appeared in the Summer 2019 issue of Insigniam Quarterly, with the headline “Turnover at the Top.” To begin receiving IQ, go here.