Second Quarter Executive Turnover Shows Real Growth

With the end of the second quarter, the United States economy appears to have turned a major corner in relation to executive turnover. Executive turnover, as tracked by Liberum, has seen a continuing jump in the totals for June 2011 and the second quarter. The jump in turnover has been apparent when second quarter was compared with the same quarter in 2010 as well as in relation to the previous first quarter of 2011. The continuing jump in executive turnover appears to be at odds again with the level of employment and unemployment in the United States economy. Troubling signs for overall employment continue to haunt the U.S. economy as the recovery continues to limp along.

Now that we are finally seeing changes at the top of corporations, hope can increase that companies will finally begin to start hiring again. Liberum contends that the slow level of executive turnover over the previous number of years related to the reluctance corporate boards and top executives had to change top leadership during tough economic times except in situations where the firm in question performed so poorly that a top executive change was necessary or if a major strategic change change in strategy was needed. As we moved into 2011, we finally saw the level of unemployment bottom out.

Liberum expects that if the economy manages to recover, even ever so slightly, the level of executive turnover will continue to rise. Both the pent up demand for new top executives and the possibilities for new job opportunities will account for growing executive turnover. Also boards are expected to be more willing to make changes as the economy continues to move in a positive direction especially if the debt ceiling problem is resolved, even temporarily.

Below are three simple graphics outlining the quarterly management changes as registered through Liberum’s Management Change Database for 2008 through 2011 (second quarter) for CEO, CFO and overall C-level turnover. The first two quarters of 2011 dramatically illustrate the reversal in trends we have seen for a number of years. Executive turnover is again in the ascendancy. We expect this trend to continue unless the economy encounters some kind of major shock, lack of agreement on the debt ceiling, for example, a major sovereign bankruptcy (Greece) or something totally unforeseen.

Quarterly Executive Turnover Continues to Decline While Overall Unemployment Remains High

Executive turnover has continued to decline throughout the economic and financial crisis and even as the recession ended according to the official proclamation by the National Bureau of Economic Research. Liberum Research’s latest quarterly turnover numbers for CEOs, CFOs, Board of Directors and C-level executives (defined to include CEOs, board of directors, CFOs, COOs, down to VP level) continued to show a drop in turnover for all key categories for the third quarter of 2010. The declining trend in executive turnover has continued since the first quarter of 2008 for all key executive turnover categories (see the CEO, CFO and C-level graphs below for quarterly turnover comparisons). While the first three quarters of 2010 continued to show significant declines in executive turnover, particularly when compared with the first, second and third quarters of 2009, we are beginning to see the overall executive turnover declines slowing when the quarterly figures are compared with each previous quarter of 2010.

• Third quarter 2010 CEO changes dropped 27%, CFO changes dropped 8% and overall C-level changes for the third quarter dropped 32% respectively when compared with the third quarter totals for 2009.

• The drop in changes for the third quarter of 2010 was much smaller when compared with the second quarter totals for 2010 - the drop was 21% for CEOs, 7% for CFOs and 6% for overall C-level changes.

While monthly executive turnover numbers have been smaller since early 2008, the investment opportunities they represent are still quite significant. Below Liberum put together three graphs representing the total executive related changes (CEOs, CFOs and C-level changes) by quarter for 2005 through the third quarter of 2010.

October CEO/CFO Turnovers Remain Surprisingly Slow

According to Liberum Research's latest management change figures, executive turnover continues to remain tepid while nationwide unemployment grows at a steady and unsettling pace. Despite the continuing slowdown in key executive turnovers over the last number of months, October was characterized by an unusually large number of what Liberum deems "significant" CEO turnovers. Significant turnovers are management changes investors should take note of and investigate further. 

Below is a graphical representation of CEO and CFO changes by market cap for the month of October. (For the specific executive turnover numbers by sector, contact Liberum directly.)