Washington - The first half of 2017 has produced a string of CEO
departures and successions, from start-up CEO whose behaviour is under
scrutiny to long-tenured Fortune 50 CEO retiring after more than a decade at
the helm. Uber's Travis Kalanick. General Electric's Jeffrey Immelt. Ford's
Mark Fields. J. Crew's Mickey Drexler.
But the revolving door at the top of corporate America
really started picking up speed in 2016 - at least for low performers -
according to a new report on CEO succession.
In its annual report, The Conference Board found that among
S&P 500 companies that were in the bottom group of performers as ranked by
their total shareholder return the CEO succession rate jumped five percentage
points, from 12.2 percent in 2015 to 17.1 percent in 2016.
That's well above the 13.9 percent average over the past 16
years, said Matteo Tonello, The Conference Board's managing director of
corporate leadership, and the highest rate since 2002, when 21.2 percent of
S&P 500 companies made a change at the top.
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"If you fall into the bottom quartile you had a 60
percent higher probability of seeing your CEO replaced than the better
performing companies in 2016," he said. While he said it was too early to
point to a definitive reason for lower performers being shown the door, a
perfect storm of more pressure from activist investors, more scrutiny on the
link between CEO pay and performance, and more dismissals in certain hard-hit
sectors prompted the relatively high boost from years past.
"We really think there's been a shift in corporate
culture in the last few years," he said. "There's much more scrutiny
and accountability when it comes to performance, especially among S&P 500
companies where CEO are very well paid."
Jason Schloetzer, a professor at Georgetown University
and a co-author of the report, said he thinks the uptick in changes is
"reflective of the shorter leash and the decrease in patience that boards
and shareholders in general have for waiting out periods of poor
performance."
The report found that trend to be particularly true in
sectors like retail, oil and gas and consumer products, where CEOs were either
hit by broader economic trends or industry upheaval that made for tougher
competition.
In those sectors, boards are quicker to take action than
they've been in the past, Tornello said. Half of the CEO jobs that changed
hands in the wholesale and retail industry in 2016, for instance, were outright
dismissals, rather than mere retirements, compared with 14 percent in 2015.
"Combine the shift to online [shopping] with rising
real estate and leasing costs and weak demand from foreign markets," he
said. "And if you add to that the increasing pressure of activists who see
it as an opportunity to jump in and change the strategic direction, that's
really a very powerful combined force that drives this change."
Boards are also more candid about why they're switching out
the skipper. Euphemistic explanations such as "retiring" or
"leaving to spend time with their family" are being replaced by more
candid if still corporate and unspecific
assessments.
In 2013, the report found, boards said that 67 percent of
successions were because of a retirement, a number that has dropped each year
since. In 2016, just 38 percent of changes at the top were assigned that
rationale, while 60 percent were described as a resignation or stepping down.
That hardly means companies explicitly say they axed the CEO
in the news release, however. For instance, when Priceline CEO Darren Huston
departed the online travel site last year following an investigation into a
personal relationship he'd had with an employee, the news release didn't
specifically say he was forced out.
But it also didn't say he was retiring, and it made it
pretty clear he'd gotten pushed. Huston, the company said, "resigned
following an investigation," which determined that he'd "acted
contrary to the company's code of conduct and engaged in activities
inconsistent with the board's expectations" for his behaviour.
Schloetzer said he's been observing the trend toward more colour
and transparency from boards on CEO departures, even if they are still relatively
opaque. "It's kind of like a cruise liner in the ocean," he said.
"You get a little bit every year, but when you look back long enough, I
think you see a meaningful trend."
He says that increased media attention on CEO changes,
particularly when the company is one well-known by consumers, may have
"made it more important for boards to control the story from the
beginning, by being more transparent in their press releases from the
start."
The Conference Board's report examined several other trends
in CEO succession, including how often companies name interim chief executives
[about 10 percent take this more gradual approach] and how often boards turn to
inside versus outside candidates [nearly 86 percent of replacements come from
the inside, about the same as in 2015].
It also looked at how many women get the top job when a
succession takes place: Six of the 63 changes at the top involved a new female
CEO.
While that number may be "depressing," Tonello
said, the number is still much better than the number of women who were named
to the job in 2015. "Last year, there was only one."
WASHINGTON POST