Millennials and Gen Z employees might get all the press for their “Great Resignation” but they aren’t the only ones who are leaving their jobs in droves. CEOs are too. The Great CEO Turnover, which peaked in 2021 and early 2022, has leveled off a bit. But it certainly doesn’t mean that your CEO is planning to stick around for the long haul.
Outplacement firm Challenger, Gray & Christmas compiles a monthly report on the CEO turnover rate. The July 2022 report shows that CEO changes at U.S. companies fell to 58 in July, down 45% from the 106 CEO exits recorded in June. It was the lowest monthly total since the early pandemic departures of April 2020.
However, departing CEOs are hardly a thing of the past.
When Deloitte and independent research firm Workplace Intelligence surveyed 2,100 employees and C-level executives in the United States, United Kingdom, Canada, and Australia, they found that an eye-popping 70% of top management are seriously considering quitting for a job that better supports their well-being. And 81% of the top execs say that improving their well-being is more important than advancing their career.
Why All the CEO Changes?
CEO departures in the last year or so show a variety of reasons.
Jack Dorsey said he left as CEO of Twitter because he has confidence in the new CEO, Parag Agrawal, taking the helm according to the CEO succession plan. And that’s despite having to deal with the likes of Elon Musk’s out-of-left-field, on again, off again offer to purchase the company.
John Foley’s CEO tenure at Peloton ended after the firm performance, which took off at the start of the stay-at-home pandemic, faltered when workers went back to the office and the gym, tanking the stock price, financial performance, and future potential.
Jeff Bezos left his job as CEO of Amazon, but he didn’t exactly step down. Rather, he is flying high as executive chairman focused on his other interests, namely Blue Origin, the Bezos Earth Fund, and The Washington Post.
Challenger, Gray & Christmas stats show that for the first half of 2022:
- 199 chief executive officers retired. (The average CEO age of retirement is a relatively young 62, according to the Harvard Business Review.)
- 211 left their CEO job to move into other high-level corporate governance positions in the company or on the board of directors.
- 58 left to join another company.
Rising CEO Turnover Nothing New
While it’s easy to see why CEOs would leave when faced with subpar total shareholder returns, corporate finance challenges, and poor performance evaluations — all common determinants of managerial upheaval post-pandemic.
But even before a pandemic sent the world spinning, CEO turnover was on the rise. A study by PwC found that 2018 was the worst year for US corporate turnover in a decade for forced exits.
The reason for the force outs? Executive misconduct and ethical lapses. PwC attributed at least some of that to the #metoo movement and the lack of tolerance by inside and outside directors of unacceptable behavior.
In fact, McDonald’s CEO Steve Easterbrook was fired in 2019 after he admitted to having a consensual sexual relationship with an employee. It was later determined that Easterbrook lied to the board about the extent of his relationships with employees and he was forced to pay back his more than $100 million severance.
The PwC report noted another CEO trend: CEO entrenchment is a thing of the past. Average CEO tenure fell to five years, down from eight, with fewer than one-fifth of CEOs lasting 10 years or longer in the role.
What Should Corporate Boards Do?
Whether a CEO resigned unexpectedly, announced plans to retire in the coming months, or is forced out due to poor performance, directors are left with the challenge of finding a suitable replacement.
Oftentimes, promoting from within is the answer. But not always.
And the trend toward hiring outside CEOs accelerated in the pandemic, according to the Harvard Business Review: “As organizations readjusted their business models, supply chains, and ways of working to weather the pandemic, it became more common to look for leaders outside the company. For example, in 2020, 29% of S&P 500 companies that replaced their CEOs hired an outsider, up from 21% in 2019. Going forward, boards may need to place even more emphasis on appointing leaders with M&A transaction and merger integration experience, digital transformation expertise, and greater familiarity with leading flexible workforces,” the report says.
Who is the Right CEO Successor?
So how do you find the right C-level executive? The two most common approaches are:
- Engage an executive search firm.
- Bring in an interim executive.
There are distinct advantages of bringing in an interim executive, which can be a different approach than engaging the services of an executive search firm. The key ones are:
- Avoid Leadership Gaps. An executive search can take months, sometimes longer than a year, to identify the right hire and get that person live in the role. An interim executive can take the reins immediately, ensuring stability within the organization, and a clear roadmap to take a company forward. If you choose to work with an InterimExecs’ RED (Rapid Executive Deployment) Team member, you can avoid weeding through hundreds of resumes and can be matched with an executive in as little as 48 hours.
- Lower Your Risk. A full-time executive hired through the executive search process is an expensive hire and a long-term commitment that can be even more costly if it doesn’t work out and you have to buy the executive out of a contract. An interim executive, on the other hand, has no contractual relationship with the company. Flexible contracts, no severance, no benefits. The contract can scale up or scale back as need be, and can easily be terminated only a full-time hire is made or the project brought to completion.
- Cross Industry Expertise. The leader you may need now in your company might be very different from the leader you need months or a year from now. A RED Team executive has the experience of working in many different companies with many different challenges in many different industries. Unlike the executives identified by head hunters, generally from within your industry, a RED Team executive arrives at the office with a wealth of experience. That means you get a fresh, outside perspective and best practices that could be put in place that someone entrenched in one industry might not think of.