Slow-down in CEO churn

Oct 10 2006 by Brian Amble Print This Article

The number of CEO departures among the 500 largest U.S. companies fell in the first three quarters of 2006 compared with the same period in 2005, reversing a trend that has been on the increase for the past five years.

Figures from the annual CEO Departures study by public relations firm Weber Shandwick show signs of a dramatic change from the rising CEO departures that had been occurring since 2000.

It could also signal greater confidence in CEOs holding office today and less turmoil at the most senior levels of U.S. business.

In the first three quarters of 2006, just 49 CEOs in the 500 largest revenue-producing U.S. companies left their jobs, compared to 58 CEOs in the same period in 2005 - a 16 per cent decline.

The high for departures was set in 2000 when one out of every five CEOs of the largest 200 U.S. companies- 21 per cent - left or lost their jobs.

Similarly, a global study of CEO turnover published earlier this year by Booze Allen Hamilton found that CEO departures hit record levels in 2005 for the second year in a row, with performance-related issues the reason for a third of the turnover.

Some 15 per cent of chief executives at the world's 2,500 largest public companies left their jobs in 2005, a 4.1 per cent increase from 2004 and quadruple the rate of departure seen in 1995.

Another trend that emerges from the Weber Shandwick report is a growing propensity for corporations to appoint interim or acting CEOs.

Of the new CEOs announced this year, almost one in five (9 out of 49) were interim appointments. In comparison, nine interim CEOs were announced in the whole of 2005 and only two interims were named in 2004.

Yet there are few signs that corporations are looking for fresh injections of talent when they appoint a new chief. For the first three quarters of 2005 and 2006, insider executives (who have worked for the company for three or more years) continued to outnumber outsider executives in being selected as new CEOs.

Meanwhile, a third of Fortune 500 CEOs have now made the "Five Year Club" by managing to remain in office from 2000 to 2005.

"The revolving door in the corner office of our largest U.S. companies appears to be slowing down. Stringent regulatory restrictions, greater board oversight and a higher caliber CEO may finally be having a dampening effect on CEO churn," said Dr Leslie Gaines-Ross, Weber Shandwick's chief reputation strategist.

"CEO stability can only be good news since CEO departures tend to increase customer concerns, employee uncertainty, investor anxiety and company paralysis."

"However, the good news about fewer CEO departures is accompanied by reminders that corporate America still faces a lack of CEO longevity. The rise in 2006 Interim CEOs underscores a significant board challenge - having groomed successors in the pipeline when current CEOs suddenly depart," Dr Gaines-Ross added.