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CEO Turnover on the Rise

With rapid economic changes taking the center stage in the US economy, the CEO turnover has witnessed a sharp increase in its transition figures in comparison with 2007 statistics. An analysis of the Fortune 500 and S&P 500 companies for the first two quarters of 2007 and 2008 by CE Online shows that there is …

With rapid economic changes taking the center stage in the US economy, the CEO turnover has witnessed a sharp increase in its transition figures in comparison with 2007 statistics. An analysis of the Fortune 500 and S&P 500 companies for the first two quarters of 2007 and 2008 by CE Online shows that there is an increased transitional activity at the top leadership of companies.  

The prominent change however is that, this year, more and more CEOs have been €˜asked to quit’. CE analysis clearly indicates that there is a three-fold increase in the number of CEOs who have been fired this year in comparison to the same corresponding period last year. 

All in all the first quarter of 2008 has reported about 37 cases of transitions for the period Jan 1st 2008 to 30th June 2008 as against 27 in 2007. Additionally CE Online analysis shows that there is an increase of about 85 percent in CEO turnover percentage for the first quarter of 2008 with 4.4 percent of the sample CEOs departing from the company as against 2.4 percent for the same period in 2007. However, in the second quarter the turnover figures mostly remain unchanged with a slight decline of 0.2 percent in 2008.

 Quarter

 2008

 2007

 Q1

 4.4%

 2.4%

 Q2

 2.8%

 3%

2008 Snapshot of CEO Turnover

As on June 30th 2008, 36 companies at 7.2 percent of the S&P 500 have appointed a new CEO, while the number of executives on the move is slated to be 37 with Apollo Group reporting two executive changes this year. In contrast, for the same corresponding period last year, only 26 companies witnessed a CEO transition with Harman International reporting two changes in 2007, thereby taking the figure to 27. 

Turnover percentage

 Group (Fortune and S&P 500)

 2008

 2007

 Overall 500

7.2%  

 5.4%

 1-100

11% 

6% 

 101-200

 4%

5%

 201-300

 6%

3%

 301-400

 8%

 8% 

 401-500

 8%

5%

Further analysis of the Fortune 500 companies shows that each group of 100 companies has reported a different turnover phenomenon. While turnover this year was relatively even across majority of the groups, the Fortune 1 to100 companies and Fortune 201 to 300 companies, reported an increase of about 100 percent at six percent in 2007 to 11 percent in 2008; and three percent in 2007 to six percent in 2008 respectively. 

However, companies categorized as Fortune 301 to 400 witnessed no change in leadership at the top with the percentages remaining stable at eight percent.  

Internal vs. External Placement

 Overall (of 37 new CEOs)

 Internal

 32/37 (86.5%)

 External

 5/37 (13.5%)

The majority of the CEOs at 86.5 percent in the S&P 500 were internal placements, which is a marginal increase of 1.5 percent over last year’s figure of 85 percent for the same period. However, only 13.5 percent of the S&P 500 companies were external placements.  

Reason for Leadership Change  

There are three main reasons for the change in guard at the top leadership of companies with voluntary or involuntary step down taking the top place, followed by retirement. 

Of the 37 transitions, the most common reason at 36 percent is either voluntary or involuntary resignation of the incumbent CEO. The second reason for change in leadership at 27 percent of the companies was the retirement, which was interestingly the number one reason last year with 52 percent of companies reported retirement of their CEOs on attaining superannuation in 2007. 

About 61 percent of the former CEO’s stepped down voluntarily and the remaining 39 percent stepped down with no reasons disclosed.  

Interestingly, the most noteworthy change is in the number of CEOs who have been forced out of office for various reasons. About thirteen percent were dismissed for their poor performance in the first two quarters of this year, which is a three-fold increase in comparison with 2007 figures. Some of the popular figures who were fired included CEOs such as Martin Sullivan of AIG, Ken Thompson of Wachovia, Michael Cherkasky of Marsh & McLennan, Edward J. Zander of Motorola and James L. Donald of Starbucks.

 Reason

 2008

 2007 

 Former CEO Retired

 27%

 52%

 Planned Succession

 11%

 0

 Former CEO stepped down

 36%

 11%

 Board forced former CEO out

 13%

 0

 Permanent CEO replaced Interim CEO

 11%

 11%

 Former CEO Resigned

 2 %

 26%

 Former CEO in bad health or passed away

 0

 0

5 Prominent Transitions for the period Q1-Q2 2007

 Company Name Executive Out  Executive In
 AT&T Edward Whitacre Randall Stephenson
 Home Depot Robert L.Nardelli Francis S. Blake
 WellPoint Larry C. Glasscock Angela F. Braly
 Dell Kevin Rollins Michael S. Dell
 Wells Fargo Richard M. Kovacevich John Stumpf

5 Prominent Transitions for the period Q1-Q2 2008 

 Company Name Executive Out  Executive In
 American International Group Martin Sullivan Robert B Willumstad
 Tagget Robert J. Ulrich Gredd Steinhafel
 Wachovia Ken Thompson Robert K. Steel
 United Technologies George David Louis Chenevert
 Sears Holdings Aylwin B. Lewis Bruce Johnson (Interim)

Related Links: 

  1. Read the Booz Allen report on CEO turnover here
  2. Read Webershandwick’s Global CEO turnover report here

About fayazuddin a shirazi research priyanka naidu