First Time CEO Appointments on the Rise

CEO departures from S&P 500 companies have taken a slight dip, says Spencer Stuart in its annual transitions report. More top leaders are being found externally, snapping a three-year decline in outside hires.

April 24, 2019 – Each year, Spencer Stuart tracks CEO transitions among S&P 500 companies. These movements can be part of a planned succession or can arise unexpectedly, often the result of company performance or personal issues. In addition to cataloging the reasons for CEO departures the search firm examines information about the successors, including whether or not they are internal candidates and whether they have been appointed chair of the board in addition to CEO.

Last year, Spencer Stuart found that the number of CEO transitions fell slightly, to 55 from 59 in 2017. In addition, a higher percentage of the new CEOs (27 percent) were hired from outside rather than promoted from within their companies. In 2017, 31 percent of new CEOs were hired from the outside, following a three-year decline in external hires (reaching a low of 10 percent in 2016).

The longer-term trend has been toward developing internal CEO successors, said the Spencer Stuart report. This is due in part to the Sarbanes-Oxley legislation, which provides for oversight of professional reporting; the professionalization of the human resources function; and boards’ increasing commitment to long-term CEO succession planning as a best practice, said the report.

“The reversal of that internally weighted trend in 2017 and 2018 may be attributed to a variety of factors, including individual company strategy shifts requiring new and different leadership, activist investors, the #MeToo movement, digital disruption and the intense pace of change,” said Spencer Stuart. “We will continue to monitor these trends.”

The report found that 55 S&P 500 companies installed a new chief executive in 2018, four less than in 2017.

S&P 500 CEO Transitions 2008-2018

Companies ranking 301 to 400 in revenue had the largest share of the transitions during 2018 (27 percent), while companies ranking 101 to 200 had the smallest share of the transitions at 13 percent.

Percentage of Transitions by S&P Company Range

Why Do CEOs Leave? Who Replaces Them?

Spencer Stuart found that the vast majority (69 percent) of CEO transitions were attributed in company reports to the former CEO’s decision to retire or step down. This represents a decline from 2017, when 73 percent of transitions were driven by CEOs retiring or stepping down. In 2018, Spencer Stuart found that 22 percent of CEOs resigned under pressure according to company reports — vs. 15 percent in 2017 — and five percent left for health reasons. Another three percent left as a result of a merger or acquisition.

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According to Spencer Stuart, the average age of incoming CEOs is 54, five years younger than the average in 2017 (59). The average age of the outgoing CEOs is 61. Just one of the 55 new CEOs is a woman, compared with seven of 59 new CEOs in 2017. Eleven (20 percent) of the new CEOs had prior public company CEO experience.

Seventy-three percent (40) of the new CEOs were promoted from within the company, the search firm found. In 2017, 69 percent of new CEOs were internal successors. Thirty-two of the internal CEO promotions, 80 percent, resulted from a planned succession.

CEO Successors: External vs. Internal Candidates

This year, Spencer Stuart also examined whether the former CEO’s reason for leaving influenced the likelihood that a board would select an internal or external successor. Its analysis showed that when a CEO resigned under pressure, his or her replacement was more likely to have been hired from outside:

  • 38 CEOs retired or stepped down; 31 (82 percent) of their successors were promoted from within; and seven (18 percent) were hired from outside.
  • 12 CEOs resigned under pressure; five (42 percent) of their successors were promoted from within; and seven (58 percent) were hired from outside.

Spencer Stuart further broke down new CEO backgrounds into five categories: internally promoted CEOs, externally recruited CEOs, former company executives, board directors who take on the role of CEO and “insider-outsiders” who were recruited from outside the company and promoted into the CEO role within 18 months.

Related: Why Building Talent Starts with Good Succession Planning

“An analysis of three four-year periods since 2007 suggests a longer-term trend toward internal successors,” the Spencer Stuart report said. “However, the 75 percent average for internal placements during the period between 2015 and 2018 includes both the highest and lowest number of external successors of the entire analysis.”

CEO Turnover

Employers at U.S.-based companies announced 135 chief executive officer changes last month, 8.9 percent higher than the 124 CEO changes announced in February, according to a report by global outplacement and business and executive coaching firm Challenger, Gray & Christmas.

Related: The Expanding Role of Culture in Search and Succession

March’s total was 40.6 percent higher than the 96 CEO exits announced in the same month last year. The report found that in the first quarter, 416 CEOs left their posts, 22 percent higher than the 341 CEOs who stepped down from their posts during the same period in 2018.

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Challenger, Gray & Christmas’ report found that first quarter CEO changes are two percent lower than the 425 CEO changes announced in the previous quarter. It is the highest first quarter total since Challenger began tracking CEO changes in 2002.

“We are seeing considerable churn in the chief executive role. Companies are grappling with changing consumer behavior and new technologies disrupting almost all industries,” said Andrew Challenger, vice president of Challenger, Gray & Christmas. “A difficult business environment, with economic uncertainty, is causing boards to make changes in their leadership ranks.”

Challenger’s report found that companies in the government/non-profit sector lead all industries in CEO changes with 95, 36 of which occurred in March. Healthcare/products companies followed with 41. Financial companies announced 37 CEO changes in the first quarter, including Wells Fargo’s Tim Sloan, who announced his intention to leave in March. Technology firms followed with 34 CEO changes in the first quarter.

According to Challenger, Gray & Christmas, through March, 169 chief executives stepped down into other positions within the company, usually as a chairperson or other member of the C-suite. Another 126 CEOs retired, while 34 found new positions in other companies. Three CEOs reportedly left because of scandal, while two departed as a result of professional misconduct allegations. Another two left due to sexual misconduct allegations.

Related: How to Attract, Engage and Retain Talent in 2019

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media

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