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May 24, 2019

Planned and forced CEO exits increase, study finds

More chief executives kicked out last year due to ethical lapses

The turnover rate for CEOs rose globally last year, driven by increases in both planned and forced exits – notably for ethical problems – according to new research by Strategy&​, PwC’s strategy consulting business.

In total, 17.5 percent of CEOs at the world’s largest 2,500 companies stepped down in 2018, up from 14.5 percent the year before and a record-setting rate for the survey, which goes back 19 years. The three components of this headline rate are departures due to M&A, forced departures and planned departures.

Although the rate of departures due to mergers remains fairly constant, planned turnover has become more prevalent over the past two decades, according to the research. Back in 2000, 6.4 percent of CEOs in the study left due to scheduled successions. Last year that figure was 12 percent, up from 9.8 percent in 2017.  

Martha Turner, partner with Strategy&, notes that over the last decade there has been more deliberate succession planning in general, including in the C-suite. Asked whether this has been driven by pressure from investors wanting pre-planned change rather than waiting for difficulties to arise, she tells Corporate Secretary: ‘I don’t think this is done solely with respect to potential problems, but also as a consequence of greater focus on developing talent and ensuring business continuity.’

At the same time, the overall increase in CEO turnover is a product of leaders being forced out. Such departures affected 3.6 percent of CEOs in the survey pool last year, up from 2.8 percent in 2017. Among these cases, the research finds that last year more CEOs were forced out due to ethical lapses (39 percent) than for financial performance (35 percent) or board struggles (13 percent) for the first time in the study’s history.

The rate of CEOs being forced out due to ethical lapses has been increasing for more than a decade: it is up from 26 percent in 2017 and just 8 percent in 2007.

‘It is likely due to many factors and a variety of causes such as fraud, bribery, insider trading, environmental disasters, inflated resumés and sexual indiscretions,’ Turner says. ‘Some of this is certainly driven by increased regulation and scrutiny combined with societal trends toward greater transparency and accountability.’

At the same time, fewer CEOs are being pushed out due to board struggles. Just 13 percent of those getting the boot last year did so due to disagreements between CEOs and the chair, board members or other stakeholders such as family owners or investor activists. This rate has been dwindling for several years, down from a peak of 41 percent in 2011.

‘The decline we see could be likely due to improved governance around the world decreasing the likelihood of these disputes, as well as companies doing a better job not revealing these internal disputes to the public,’ Turner explains.