BusinessWeek (June 30, 2008) noted that "Corporate watchdogs are rarely thrilled to see a chairman replace an ousted chief executive, except on an interim basis. Among other things, the oversight role means the chair may share some of the blame when things go wrong. As veteran leader Jack Creighton noted in The McKinsey Quarterly, putting a CEO-in-waiting at the head of a board can also erode trust. 'The last thing you want is for the CEO to think the chairman is after his or her job,' Creighton says."
The Wall Street Journal reported that more than a dozen U.S. companies have installed independent board members as permanent CEOs since late 2004. Among the factors contributing to these appointments include the rise in CEO turnover...internal successors are often not ready for the top spot or companies have such deep-seated problems that make it hard to recruit outsiders. Additionally, there is increasingly a deep pool of outside executives in the boardroom. Examples of companies that have named independent board members to CEO include Boeing, Delta Air Lines, Bristol-Myers Squibb, Sun-Times Media Group and Newell Rubbermaid. (February 4, 2008)
A study by management consultant Booz Allen Hamilton found that corporate boards are three times more likely to force out their CEO for performance-related reasons than they were ten years ago. Whereas only one in seven CEOs were ousted in 1996, nearly one in three were pushed out in 2006 due to poor performance. The annual study found that 357 CEOs (14.3%) of the world’s largest 2,500 public companies left their positions in 2006. Of the 357 departing CEOs, 4.7% were forced out. Turnover in 2006 was slightly lower than 2005 turnover, with 15.2% of the world’s largest companies’ CEOs departing. Booz Allen attributes the high turnover rate to a new, post-Enron boardroom culture of increased regulatory scrutiny, demanding activist hedge funds and private equity investors, and the fall of the imperial CEO.
Kevin P. Coyne and Edward J. Coyne Sr. reported in Harvard Business Review (May 2007) that senior executives are at significant risk of losing their jobs when a new CEO arrives. Worse, their new job is likely to be a lower position or at a smaller firm.
Heidrick & Struggles, a leading executive search and leadership consulting firm, partnered with the Center for Effective Organizations at the University of Southern California’s Marshall School of Business to conduct the 10th Annual Corporate Board Effectiveness Study. The study yielded several key insights about CEO succession planning and compensation:
Heidrick & Struggles’ new book, Riding Shotgun: The Role of the COO, provides a new understanding of the often little-understood role of Chief Operating Officer. While the role of COO is not always that of “deputy CEO,” there are usually few executives better qualified to take the reins in the event of the death or sudden departure of the CEO. The authors – Nate Bennett and Stephen Miles - develop a framework for understanding who the COO is, why a company would want to create this position, and the challenges associated with successful performance in the COO role.
North American management turnover was way up in 2006, according to BusinessWeek. Executive-level churn – from directors down to VPs – rose 68% in 2006. The drug/biotech industry saw the most CEO and CFO turnover. Liberum Research conducted the analysis using SEC filings and press releases of North American publicly traded companies.
USA Today has compliled a list of CEOs who died while in office. Although it may seem unusual, several CEOs have died each year while holding the position. This event poses many challenges for companies and boards.
An article on Interim CEOs appeared in The Wall Street Journal's In The Lead column on 18 December 2006. The article by columnist Carol Hymowitz mentions that this new breed of CEO can underscore the board's failure to have a successor in place. She writes that Interim CEOs have the onerous task of keeping the organization humming without the authority to hire new leaders or make strategic decisions. Additionally, some Interim CEOs do not want to look as if they are running too hard for the corner office and can accidently downplay their accomplishments to their disadvantage.
Succession planning also becomes an issue when dealing with responding to a chief executive's health crisis. As discussed by Joann S. Lublin in The Wall Street Journal article "No One to Turn To", a lack of preparation often becomes apparent for most companies when a CEO falls ill. Much has been touted of McDonald's preparedness following Jim Cantalupo and then shortly thereafter with Charlie Bell but this is more the exception rather than the rule. A recent study by the Society for Corporate Secretaries and Governance Professionals shows that just 38 percent of publicly held companies have drafted written succession plans. And another study by Corporate Board Member Magazine and PriceWaterhouse Coopers found that nearly half of major board directors were dissatisfied with their company's handling of succession issues.
According to management consultancy Booz Allen Hamilton, global CEO turnover set another record in 2005. For several years now, Booz Allen has conducted CEO succession research and found that seven of the world's largest companies changed leadership. This is a significant rise from one in 11 in 1995. About 35% of CEOs in US companies were forced out last year, up from 12% in 1995. Some of their key findings are: