CEOs Still Being Shown the C-Suite Door

May 17, 2004 (PLANSPONSOR.com) - Even though forced CEO departures declined in 2003, involuntary turnover remains at near-record levels, a new survey found

The latest poll regarding CEO turnover by consultant Booz Allen Hamilton also found that dividing the roles of CEO and chairman – currently a red hot issue in many corporate governance circles – doesn’t produce a top-performing company.

The rate of CEO succession was 9.6% in North America last year, just behind Europe’s 9.7% and significantly behind Japan’s 13.8%. Overall, 9.5% of the world’s 2,500 largest public companies changed chief executives in 2003, compared to 10.7% in 2002. Still, the rate of CEO dismissals has increased by 170% from 1995 to 2003.

In North America, fewer CEOs were forced out the door last year. In the U.S. and Canada, involuntary successions accounted for 31% of all turnover in 2003, down from 2002’s peak of 39%, but higher than in any other year studied.Global performance-related successions declined 29% from 2002, and represented 31% of all CEO departures, compared to 39% in 2002, Booz Allen found.

The survey also found that companies that split the CEO and chairman roles perform worse than companies with a single Chairman/CEO with return to investors in North American firms 4.1% lower when the roles are split. “By and large, the ‘imperial CEO’ doesn’t – and shouldn’t – exist,” notes Charles Lucier, senior vice president emeritus of Booz Allen Hamilton.

In addition, boards of directors seeking improved performance are quick to replace an underperforming CEO – often with an outsider, viewed as best equipped to shake up the company. Yet the Booz Allen study found that CEOs hired from the outside do not perform as well as leaders groomed from inside and are forced out of office more often. In North America, 55% of outsider CEOs who left were forced to resign.

A tough job is taking its toll on CEO tenure. Regionally, North American CEOs enjoyed the longest terms at 9.4 years, and European tenures are the shortest, at 6.5 years.

Other Booz Allen findings included that:

  • scandalous CEO behavior is relatively rare. Only a handful of company leaders – no more than 0.3% in any year of the firm’s polling – have been dismissed due to accounting irregularities or financial shenanigans.
  • the younger the CEO when hired, the higher the likelihood of being fired. Chief executives forced from office last year were, on average, 49 years old when they were hired; CEOs who retired voluntarily were five years older when they started.

In 2003, the industries that saw the highest rates of CEO turnover were:

  • utilities (14.3%)
  • energy (11.5%)
  • health care (11.3%)
  • materials (10.7%).

Financial services was the safest industry for CEOs in this study – during the period between 1995 and 2003 the financial services industry had the least turnover overall (7.7%) and the fewest forced departures (1.8%). Booz Allen studied the 237 CEOs of the world’s largest 2,500 publicly traded corporations who left office in 2003 and evaluated both the performance of their companies and the events surrounding their departure.

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