The time for CEOs is ripe
CEO turnover ushers in vast uncertainty. CEO transitions disrupt the flow of information as company rhythms are in flux. When new CEOs arrive, there is heightened sensitivity to everything that is said and done. No one finds it easy, including CEOs. For me, it is an opportunity to better understand how the CEO transition landscape might be changing and if there are any clues I can use to better counsel incoming CEOs.
The Conference Board just issued its new annual report on CEO turnover. They learned that non-voluntary CEO departures or dismissals in 2014 among S&P 500 companies declined to their lowest levels since 2005. In 2014, the dismissal rate was less than 16%, down from nearly 24% in 2013 and nearly 30% in 2012. Alas, more CEOs are keeping their jobs and presumably more employees are sleeping better at night. Undoubtedly, the improving economy around the world has something to do with this stabilization at the highest levels. In the report, CEO Succession Practices, sponsored with Heidrick & Struggles, several trends are worth noting:
- Joint CEO and chairman appointments are diminishing. Only 8% of 2014 successions had CEOs also named as chairmen, down from nearly 10% in 2013 and a large 19% in 2012. As the researchers point out, the model of independent board leadership seems to be gaining ground and ex-CEOs staying onboard for the long-term seems to be fading. Because most companies prefer to not have a new CEO coming in and being undermined by a departing CEO who is now a board member, the research found that policies surrounding departing CEOs staying on as board members is slowly diminishing. That is probably good news because it is difficult to make change happen when you have the prior CEO sitting on the board or looking over the new CEO’s shoulder. It is also a relief for senior teams who have allegiances with the former CEO and now need to establish ties with the new CEO.
- Older CEOs are leaving at a higher rate than younger CEOs. A generational shift is upon us. CEOs who are 64 years and older were found to have a higher turnover rate — nearly 29% — compared to 6% of younger CEOs. Younger CEOs are also probably less social media-phobic which is good news for the social set.
- CEO tenure is lengthening too. Indicating that the economy is stabilizing and CEOs are performing better, tenure is getting longer. At the peak of the financial crisis in 2009, CEOs were losing their jobs at a faster clip (7.2 years), far shorter than the average tenure in 2002 (11.3 years).
- 2014 9.9 years
- 2013 9.7
- 2011 8.4
- 2009 7.2
- 2002 11.3 years
CEOs should enjoy their CEO-ships while they last. Their predecessors are not sticking around like they used to, they are likely to be more youthful and their tenures are decidedly longer. It does not get much better than that.