What's the current state of turnover at the very highest level of leadership? According to the most recent research, the forecast for CEO turnover is stormy.
- New studies reveal that CEO turnover was up 22 percent in the first quarter of 2019 compared to the same period in 2018.
- That's a frightening finding in light of the fact that the rate of CEO turnover in 2018 itself represented a historic 10-year high, with 17.5 percent of the 2,500 largest global public companies registering a change at the top.
It appears that leadership transitions at the top are more common than ever before — and that means they're more important than ever before, too. Let's dig into the recent data around CEO turnover, uncovering key drivers before turning to a discussion of focus area where organizations should look to make improvements.
the high cost of bad behavior
Looking at the data from 2018, it's clear that there are a host of new factors impacting CEO turnover — and most notably, that forced departures aren't being driven by disappointing performance on the balance-sheet alone.
According to an analysis by PwC, the leading causes of CEO departures last year were:
- ethical misconduct (39%), defined as a "scandal or improper conduct," like "fraud, bribery, insider trading, environmental disasters, inflated résumés or sexual indiscretions"
- poor financial performance (35%)
- conflicts at the board level or with activist investors (13%)
Interestingly, even when the root cause of CEO turnover isn't explicitly tied to financial performance, there's evidence to suggest that it nonetheless strongly correlates with the overall health of the business. Last year, for example, forced departures accounted for 45 percent of all successions at companies performing in the bottom quartile. For companies performing in the top quartile, on the other hand, that percentage was just 21.
Finally, it's worth noting that, from an industry-specific lens, the risk of CEO turnover doesn't touch all sectors equally. Organizations operating in the government and nonprofit sector are the most likely to experience changes at the top, followed by those in IT and financial services.
renewing the focus on succession planning
How can companies mitigate risks and ensure continued business growth in this context, in which high rates of volatility are likely only going to increase at the highest-level of leadership?
The answer, for starters, is to introduce far more robust succession planning. And these planning efforts should take into account not only CEOs, but all roles across the C-suite. After all, while CEO burnout is obviously a huge concern, the C-suite at large is susceptible to disruption today more than ever before. Consider that fact that the average CMO's tenure is a mere 44 months,the lowest out of all C-suite executives, for instance.
If not, organizations face bottom-line consequences that can be nothing short of crippling. According to recent research, when organizations scramble to replace departing CEOs, they stand to lose as much as $1.8 billion in shareholder value. And the fact that losses of this magnitude could be prevented through more robust succession planning only makes them more troubling.
key takeaways
Getting ahead of CEO burnout is a prominent challenge for many organizations today. And it's an urgent one, too, particularly in light of the persistent misalignment between CEO compensation and performance that continues to plague many organizations. Simply put, organizations are frequently overpaying executives who underdeliver. (One recent academic study characterizes this misalignment as a "pay-for-luck" compensation strategy.) This needs to change, and fast.
Doing so will require widespread improvements — everything from better governance, to reduce the risk of ethical misconduct, to strong internal initiatives, like more robust succession planning and cross-functional, rotational development programs to nurture future leaders. And this is also an area where strategic partners can deliver tremendous value.
At Tatum, for example, we can enhance your succession planning efforts from end to end, ensuring you have highly skilled leaders in place, so your business continues to thrive, no matter what tomorrow throws at you.
Whatever your business needs may be, from on-demand talent to strategic advisory, we offer customized solutions and can solve for your most pressing pain points. Connect with us today to learn how.