Management Turnover as Change Agent

Thursday, July 17, 2014

2nd Quarter Executive Turnover Remains Positive - Investment Ops Abound

Executive turnover continues in a positive direction despite a slowdown in a few of the key categories.  The trend in executive turnover continues to correlate with the continuing positive news related to job growth in the American economy and the declining overall unemployment rate.  Last Thursday, July 3, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) announced the June Employment Report and, as anticipated, the numbers were quite positive.  According to the BLS Report,

Total nonfarm payroll employment increased by 288,000 in June, and the unemployment rate 
declined to 6.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains were widespread, 
led by employment growth in professional and business services, retail trade, food services and drinking 
places, and health care. 

Earlier in that same week, ADP released it latest Employment Report and the job growth numbers were also very positive. According to the ADP Report released July 2,

Private sector employment increased by 281,000 jobs from May to June.

Mark Zandi, chief economist of Moody’s Analytics, said, "The job market is steadily improving. 
Job gains are broad based across all industries and company sizes. Judging from the job 
market, the economic recovery remains fully intact and is gaining momentum.” 

The American economy appears to moving on all cylinders.  Job opportunities are growing at numerous levels of the economy but still remain inconsistent for numerous people with different skills and experience.  Top executives in both small and large firms are beginning to find new job opportunities for their talents.  Liberum Research expects to see increased turnover in the executive ranks as we move through the the Summer and into the early Fall, despite the fact this is typically a slower time for executive turnover.  
Liberum has put together below a six plus year quarterly breakdown of executive turnover totals for CEOs, CFOs and C-level executives covering North America. Most of the below quarterly numbers showed continuing declines until the second quarter of 2011.  At this point, the numbers began to reverse themselves.  Turnover at the executive levels of corporate America began to grow but not consistently.  You can see that despite the slowing overall numbers in June of this year, the numbers were quite positive for the second quarter.
Below is a simple table outlining the quarterly turnover totals as registered through Liberum Research's Management Change Database for 2008 through the first quarter of 2014 for CEO, CFO and overall C-level turnover.  

 Total CEO Turnover Comparisons   
 Year 2008    2009 2010 2011 2012 2013 2014   
1st Quarter 745491 388346 680 583 500 
 2nd Quarter596 380321 581665 619 537 
 3rd Quarter533409298713 636 627 
 4th Quarter461430328697 673 636 
 Annual Total2,3351,7101,3352,337 2,6542,465 1037
 Total CFO Turnover Comparisons 
 Year 2008    2009 2010 2011 2012 2013 2014   
1st Quarter 593 332 296 280 640 495  468
 2nd Quarter551 326 273 404612 557   595 
 3rd Quarter438 279 256629 598582  
 4th Quarter364 313  258   476569562  
 Annual Total1,9461,250 1,0831,789 2,4192196 1063
 Total C-level Turnover Comparisons
 Year 2008    2009 2010 2011 2012 2013  2014   
1st Quarter 6735 4061 34532863 5442 3971 4083 
 2nd Quarter7430 5051 3199 404150364102 4117 
 3rd Quarter4865 3690 25225349 42354123 
 4th Quarter4277 3439  2381   4596 41974196 
 Annual Total23,307 16,241 11,55516,849 18,91016,392 8,200

As you can see from the quarterly and annual executive turnover totals in the above chart, North American public companies are operating at a more consistent level with regard to turnover.   The same is true when viewed from a brief monthly perspective. June's 2014's executive turnover totals remained reasonably high in the key categories.  Liberum expects this trend to continue as we move through the Summer and early Fall months.  

The latest monthly comparison figures with regard to executive turnover for June 2014 with those of June 2013 and May 2014 and June 2014 are as follows:  
  • CEO turnover for June 2014 declined 14% from that of June 2013, whereas CFO turnover increased 10%, C-level and Board of Director turnover declined 15% for both categories.  
  • The the month to month change from May 2014 to June 2014 showed a decline of 23% for CEOs, a decrease of 27% for CFOs and a decline of 20% with regard to C-level changes and a decline of 12% for Board of Director changes.  
In the below report, Liberum has focused on fifty six CEO changes of special significance for the month of June out of a total of only 164. We have also put together the overall turnover figures for the month of June 2014.  The below information is just illustrative of how investors could view executive turnover and its possible relationship with a company's performance. The same could be done for COOs, Presidents, Chairmans, etc. just through the Liberum database.

06-12 Absolute Software ABT  TORONTO  301
06-24 Advanced Cell Tec ACTC  OTC  193
06-02 Advanced Energy Industries, Inc.  AEIS  NASDAQ  756
06-17 Air Products & Chemicals, Inc.  APD  NYSE  27679
06-18 American Apparel, Inc.  APP  NYSE  115  
06-10 American Int'l Group, Inc.   AIG  NYSE  79580
06-24 Antares Pharma Inc.  ATRS  NASDAQ  358
06-02 Arctic Cat, Inc.  ACAT  NASDAQ  452
06-05 Avra   AVRN   47
06-12 bebe stores, Inc.  BEBE  NASDAQ  263
06-16 Biolase, Inc.  BIOL  NASDAQ  80
06-09 Brainstorm Cell T  BCLI  OTC  55
06-05 Caprock Oil Inc  ROKO  OTC 48
06-24 Chemring Group Pl  CMGMF  OTC  737
06-02 Cision  CSN   ST
06-26 Citrix Systems, Inc.  CTXS  NASDAQ  10426
06-02 Curis, Inc.   CRIS  NASDAQ  145
06-17 Dara Biosciences  DARA  NASDAQ  10
06-10 Dendreon Corporation  DNDN  NASDAQ  327
06-25 Diadexus, Inc.  DDXS  OTC  41
06-03 Digipath DIGP   OTC  22
06-11 Dna Brands, Inc.  DNAX  OTC  696
06-27 Dollar General Corp.  DG  NYSE  17346
06-13 Doral Financial Corp.  DRL  NYSE  30
06-18 Ecrypt Techno Inc  ECRY  OTC  16
06-02 Equity One, Inc.  EQY  NYSE  2796
06-09 Everyware Global,  EVRY  NASDAQ  28
06-30 Finnvedenbulten  FBAB  STO
06-12 First Natl Corp S  FXNC  OTC  37
06-05 Fresh Promise Foo  FPFI   OTC  306
06-28 Furmanite Corp  FRM   NYSE  417
06-25 Heatwurx  HUWX  OTC  20
06-02 Hipcricket Inc  HIPP  OTC  32
06-23 I.D. Systems, Inc.  IDSY  NASDAQ  62
06-12 Infosys Technologies Ltd (ADR)  INFY  NYSE  30421
06-03 Innocent, Inc.  INCT  OTC  392
06-24 Kid Brands, Inc   KIDB  OTC  233
06-16 Lihua Internation  LIWA  OTC  62
06-05 Maxwell Resources, Inc.  MAXE  OTC  1
06-11 Medient Studios,  MDNT  OTC  1
06-02 Navidea Biopharma  NAVB  NYSE  239
06-13 Novatel Wireless, Inc.  NVTL  NASDAQ  60
06-10 Ocean Power Tech  OPTT  NASDAQ  20
06-18 Pdc Energy, Inc.  PDCE  NASDAQ  2410
06-13 Protalix BioTherapeutics Inc.  PLX  NYSE  356
06-30 Rayonier Inc.  RYN  NYSE
06-13 Research Frontier  REFR  NASDAQ  139
06-25 Senesco Tech  SNTI  OTC  19
06-17 Solvista Gold Cor  SVV  CA VANCOUVER  10
06-27 Tecumseh Products  TECU  NASDAQ  94
06-06 Thinspace Tech  THNS  OTC 23
06-04 Universal Truckload Srvcs, Inc.  UACL  NASDAQ  715
06-03 Unwired Planet, I  UPIP  NASDAQ  239
06-23 Vican Resources,  VCAN  OTC  19
06-06 Xerium Technologies, Inc.  XRM  NYSE  242
06-23 Zynex Inc  ZYXI  OTC  8

> Drugs/Biotech 
- 160
> Banking  - 101
> Energy - 70

> Drugs - 24
> Auto  - 7
> Energy - 6

> Drugs/Biotech - 26
> Metals/Mining - 14
> Health - 10

> Drugs/Biotech - 60
> Banking - 26
> Energy- 25
Investors need to diligently monitor key management changes. Certain management changes should be viewed as a "special situation" that can have a direct and major impact on a company's performance and share price.
  • New CEOs know more than the market about the company.  Their decision to take the position contains information. Likewise the departing CEO. Likewise departing CFOs.
  • New CEOs will bring new skills and often-times a new direction.  This is normally significant, and worth analyzing.
Liberum Research, the independent research firm focused on corporate management change, has developed an online relational database designed to assist institutional investors develop special situation investment ideas related to executive management change. While special situation investing traditionally revolves around corporate restructuring, spin-offs and acquisitions, executive management changes, depending on the circumstances, can represent a short or long-term investment opportunity. 
Liberum's ten year old database offers institutional investors the ability to examine an individual company, sector/s, group of companies, and/or geographic region/s/ locations via a metric of one's own choosing.  You can use the information individually or in combination with a number of other financial tools to develop unique investment ideas.  Subscribers often take the service as an electronic feed rather than as an online service. Through the use of Liberum's electronic feed, investment firms have the ability to integrate Liberum's management change data with a variety of other feeds and data applications which when combined could be used as a sophisticated method for developing potential short and long-term investment ideas. 

No comments: