Administration May 6, 2003

Showing CEOs the Door Early Now 'Normal'

June 17, 2002 (PLANSPONSOR.com) - As performance standards for chief executive officers continue to tighten, CEO early departure is accelerating globally to the point where it is "the new normal," according to a new survey.
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The survey, by consultants Booz Allen Hamilton, found a growing shareholder impatience and board activism helping to drive down the average CEO tenure from 9.5 years in 1995 to 7.3 years in 2001.

Findings

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Among the Booz study’s key findings:

  • Turnover of major corporate CEOs increased by 53% between 1995 and 2001. Those given the boot for lagging fiscal performance skyrocketed 130% during the same period.
  • European CEOs are being shown the door twice as fast their North American counterparts – more often than not for poor job performance. Some 34% of the European departures were for that reason, compared 22% in North America.
  • CEOs are entering and departing office at a younger age. In the West, the average CEO rises to office before his or her 50th birthday
  • CEOs last longest in the financial services industry, at more than ten years on average. They are most vulnerable in telecommunications services, where their tenure averages only four years.
  • There is a clear connection between a company’s shareholder returns and a CEO’s survival in North America and Europe. In Asia/Pacific, performance wasn’t about returns to shareholders but rather about the rate of net income growth.

Turnover

The frequency of CEO turnover will continue to grow, the Booz Allen study concludes, because of:

  • shareholder-value pressures,
  • the demonstrable drop-off in company performance during the second half of CEO tenures, and
  • the growing pool of experienced former CEOs available to run companies

Booz Allen studied the 231 CEOs of the world’s 2,500 publicly traded corporations who left office in 2001.

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