Quarterly Executive Turnover Continues on a Tear

What a difference a year makes. For the last number of years, executive turnover at the top ranks of public companies was extremely low. As the nation and the world faced the huge financial crisis in 2008 and thereafter, companies were loath to change executives unless absolutely necessary but were often eager to layoff off general employees. For the last 12 – 14 months, Liberum Research has seen a real shift in the trend. Executive turnover overall has continued to rise while overall employment has finally showed signs, while tepid, of growth. Last week, ADP which tracks overall private employment, announced more positive news for the month of March. According to ADP’s latest Employment Report:

Employment in the U.S. nonfarm private business sector increased by 209,000 from February to March on a seasonally adjusted basis. Estimated gains for previous months were revised higher; the gain from December to January was revised up by 9,000 to 182,000, and the gain from January to February was revised up by 14,000 to 230,000. Employment in the private, service-providing sector increased 164,000 in March, after rising a revised 183,000 in February. Employment in the private, goods-producing sector rose 45,000 in March. Manufacturing employment added 23,000 jobs.

Later in that same week, the U.S.Labor Department released its employment numbers and to most analysts’ surprise, they were less than encouraging. Liberum expects the numbers will be revised upward but the lower than expected totals were a cause for some concern. According to the Bureau of Labor Statistics‘ employment numbers for March released on Friday, April 6,

Nonfarm payroll employment rose by 120,000 in March, and the unemployment rate was little changed at 8.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in manufacturing, food services and drinking places, and health care, but was down in retail trade.

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 quater of 2011. At this point, the numbers began to reverse themselves. Turnover at the executive levels of corporate America began to grow. Companies began again to consider new blood and often looked to change their corporate strategies as kernels of opportunity began to sprout ever so slightly. We also saw a number of major companies change leadership after major declines in revenues and/or profits.

GRAPHIC REPRESENTATION OF QUARTERLY KEY EXECUTIVE TURNOVER TOTALS

2005 – 2012

CEO & CFO Turnover Comparisons for 2005, 2006 & 2007

Liberum Research has found that corporate management turnover in 2007 was slightly below the record levels registered for 2006 but remained very high and was far above the numbers recorded in 2005. 2007 CEO, CFO and C-level turnover totals registered an overall decline of 5%, 2% and 2% respectively from that of 2006. The actual CEO and CFO changes for 2007 overall, however, were far more "significant" and in many cases were far more high-profile for the companies involved than were those registered in 2006.

2007 turnover data began to trend upwards after the first quarter of 2007 concluded. The first quarter of 2007 recorded dramatic declines from the same quarter in 2006. CEO turnover declined 17%, CFO turnover declined 22% and overall C-level management declined 15% in the first quarter of 2007 as compared with the same categories in 2006. The last three quarters of 2007, however, trended upward and are expected to continue at a high level into 2008. Each of the last three quarters showed a similar pattern in overall management changes with the record level of turnover recorded during 2006. Turnover totals for the last three quarters of 2007 were nearly the same as those in 2006 (see the graphs below).

Red Bar 2005
Blue Bar 2006
Green Bar 2007

Red Bar 2005
Blue Bar 2006
Green Bar 2007

Red Bar 2005
Blue Bar 2006
Green Bar 2007

Liberum expects the overall level of management change to continue to remain high as we move through the winter. Liberum's research anticipates the credit crisis to continue to have an impact on CEO and CFO turnover for the next few months and potentially beyond.

Food For Thought On Long Serving CEOs

According to a September 26 piece by Dennis Berman on The Wall Street Journal's Deal Journal,

the fifth year of a CEO’s tenure is his most tumultuous, and the one where he is most likely to do a deal, according to a fresh study of CEO behavior conducted by two Harvard Law School professors.

The professors John C. Coates IV and Reinier Kraakman crunched numbers on CEO tenure at S&P 500 companies from 1992 through 2004, representing a total of 6,449 analyzed years. They found that during the first four years of a CEO’s stay, the turnover is very low.

Once the fifth year hits, all kinds of weird things start to happen. The number of mergers at such companies surges nearly four-fold in that fifth year. Retirements accelerate as well.

For more on the study check out the professors' report. If you want to perform your own analysis you might consider checking out Liberum's Management Change Database which is far more comprehensive than the data used by the two Harvard Professors.

Booz Allen Study Confirms Growing Power of Boards

May 22, Booz Allen Hamilton announced the results of its CEO turnover study. According to the study:

Global CEO departures have leveled off at a high plateau, and less than half of CEOs leaving office in 2006 departed under normal circumstances, according to the sixth annual survey of CEO turnover at the world’s 2,500 largest publicly traded corporations released today by management consulting firm Booz Allen Hamilton. The study found that corporate boards are quicker than ever to replace underperforming CEOs, as they focus more on grooming in-house leaders and turn to outsider and interim CEOs less often as outsider results continue to disappoint.

Booz Allen's conclusions are similar to those Liberum Research has been providing to our email subscribers for the last year and a half. For details on the Booz Allen study go to the firm's site.


For more on the study:

New York Times
International Herald Tribune
Press Release