CEO Turnover on the Decline

While recent surveys recorded a slump in CEO turnover, search for new CEOs has gained momentum.

October 5 2010 by Fayazuddin A. Shirazi


If you thought CEO turnover was on the boil with three high profile CEO departures reported recently – HP, Sara Lee and GM – you are probably wrong.

A cursory look at a recent report from Liberum Research, a NY based tracker of top C-level changes reveals CEO churn in the first half of 2010 has in fact seen a declining trend, and may not rise until the economic outlook clears and stock-option values rebound, says the report.

Interestingly, contrary to the declining CEO turnover, executive search for new CEOs has considerably gone up.

Liberum recorded 709 CEO changes in 2010′s first half among publicly traded companies in the U.S., which is down from 871 a year earlier and 1,482 in the first six months of 2006.

Quoting John Wood chief of CEO and Board Practice at Chicago-based Heidrick Struggles International, Bloomberg said that boards were looking at their CEO and saying: ‘You’re not going anywhere. We’re in trouble right now and we need you to stick around and sort this out for us.”

“C-suite churn” sliding to levels not reached since at least 2005 shows how directors prefer to shake up top management in good times and stick with “the devil they know” during a recession, said Gail Meneley, a co-founder of search firm Shields Meneley Partners in Chicago.

Additionally another recent study from Liberum also suggested a consistent drop in CEO transitions. However, as against a prediction that CEO turnover was expected to rise in 2Q the decline is apparently persistent in 2Q as well.

Liberum said that the declining trend in executive turnover has continued since the first quarter of 2008 for all key executive categories.

“For the first time since early 2008, Liberum expects the declining trend in executive turnover to have bottomed. We expect to see turnover numbers to begin to increase as we move into the second quarter of 2010,” Liberum noted predicting a rise in CEO turnover while releasing its 1Q compilations.

Toeing similar line, another CEO turnover study from Challenger, Gray & Christmas, a Chicago based global outplacement firm, although hinted at a marginal up tick in CEO turnover for the same corresponding period, the study however registered a decline in CEO turnover at historical levels.

Challenger’s monthly study recorded 88 CEO transitions for July, the lowest figure since April 2009, while in June and May the outplacement firm registered 107 & 125 CEO exits. In July 2009, CEO turnover was 30 percent higher with 126 CEO changes.

Challenger study recorded 761 CEO exits so far this year, which is actually an increase of four percent with 733 departures at the same point a year ago. However, historically the CEO turnover slumped in 2010 – with 761 changes – while for the same corresponding period it remained high at 848, 806 and 846 in 2008, 2007 & 2006 respectively.

Month 2010
(No. of
transitions)
2009
(No. of
transitions)
2008
(No. of
transitions)
2007
(No. of
transitions)
2006
(No. of
transitions)
2005
(No. of
transitions)
Jan 89 113 134 114 139 92
Feb 132 82 114 127 112 103
Mar 119 114 123 103 87 129
Apr 101 78 112 126 115 117
May 125 115 115 144 148 120
Jun 107 105 126 105 127 120
July 88 126 124 88 118 96
Total 761 733 848 807 846 777

Source: Challenger, Gray & Christmas

“The slight up tick in CEO changes this year remains well below the record pace set in 2008, which saw 848 departures announced from January through July, and ended the year with 1,484 CEO exits,” John A. Challenger, CEO Challenger, Gray & Christmas told CE Online.

Challenger pointed out that it was not unusual to see a drop in CEO departures during the summer months. In four of the past five years, CEO turnover was lower in July than in June and, in three of the past five years, the July total was lower than the annual average.

“It is too soon to tell if this July’s decline is part of a bigger downward trend in CEO turnover or simply a byproduct of the typical seasonal cycle that seems to slow corporate activities and decision-making during the summer,” Challenger added.

According to Challenger it’s unclear whether the decrease in July –– is merely a seasonal factor or the start of a persistent slowing of CEO turnover, but it is clear that the biggest upheaval has come in health care sector and government/non-profit this year.

“These sectors are still trying to find their footing in this recovery. Both continue to struggle amid massive budget shortfalls and may be seeing higher turnover as they lose leaders who are unwilling or unable to guide the organizations through the rough patch,” feels John Challenger.

However, according to Booz-Allen CEO Succession Study, CEO turnover over the past few years hasn’t changed much and remains stable at historical levels. The Booz research found that in 2009 worldwide turnover rates remained at the relatively high level of 14.3 percent, a percentage that hasn’t changed much in the past five years.

Interestingly, while the CEO turnover has declined, search for CEOs at corporations has gained momentum. According to Association of Executive Search Consultants (AESC) and Russel Reynolds Associates, the NY based premier C-level executive search and recruitment firm, the number of executive searches in North America rose about 33 percent during the first half of this year.

In an interview with The Wall Street Journal, Clarke Murphy, head of the global CEO and board-services practice for search firm Russell Reynolds Associates, says he finds himself so busy nowadays that he needed to reach nine references for a prospective CEO over a single July weekend.

AESC estimates show that while there’s an increase of 33 percent in executive searches in North America, the global executive searches within the Financial Services industry witnessed the greatest year-on-year growth in Q2 2010, rising 50 per cent from Q2 2009.

This growth was closely followed by increased search activity within the Technology industry, up 43.5 per cent year-on-year, and then Industrial (+39 percent) and Consumer (+37 percent), AESC revealed in a recent media release.