Professor Schloetzer's Research on CEO Dismissal Rate Published in Conference Board Report

July 28, 2011

Outside Successor Appointments Also On The Rise

The rate of dismissal of CEOs in the S&P 500 due to disciplinary actions has increased in recent years, while 25 percent of boards of directors facing a chief executive succession have opted for an outside hire, according to a new report by The Conference Board, the global business research and membership organization.
The 2011 CEO Succession Report documents and analyzes succession events regarding the chief executive officer in S&P 500 companies in the 2009-2010 period and includes, where appropriate, historical comparisons with data from the last decade.
"The report constitutes the latest addition to the portfolio of governance research developed by The Conference Board to assist its member companies," says Matteo Tonello, Research Director of Corporate Leadership at The Conference Board and a co-author of the report with Jason Schloetzer, Assistant Professor at the McDonough School of Business at Georgetown University. "In designing the first edition of what will become a periodic report, we spent a great deal of time reviewing existing sources of information to ensure that our product provides a comprehensive set of benchmarks on the subject."
"One of the most important strategic risks that a corporation must manage is the succession of its chief executive officer," adds Schloetzer. "This is true today, more than ever, due to the recent challenges posed by a variety of economic factors. To make an informed decision, the board should understand not only the technical knowledge and experience necessary to effectively lead the company into the future, but also the context and practices of the succession planning process."
The following are some of the key findings described in the 2011 edition of the report. (To see the full list of key findings: )
CEO succession rate
In 2010, 51 CEOs in the S&P 500 left their post. The rate of CEO succession was approximately 10 percent, consistent with the average number of annual succession announcements from 2000 through 2009.
Company performance and CEO age as determinants
The probability of CEO succession is higher following bad performance. In the 2000-2010 period, the succession rate of CEOs of poorly performing companies ranged from 21 percent in 2002 to 10 percent in 2009, while the rate for better performing companies varied from 7 to 12 percent (also in 2002 and 2009, respectively). Similarly, the probability of CEO succession is higher for CEOs who are at least 64 years of age. In the 2000-2010 period, their succession rate ranged from 27 percent in 2005 to 9 percent in 2008, while the rate for younger CEOs ranged from 9 percent in 2000 and 2001 to 13 percent in 2005. The rate of succession regarding younger CEOs is remarkably consistent across the sample.
Disciplinary and non-disciplinary departures
During the 2000–2010 period, there was a declining trend in CEO retirements. The rate of retiring CEOs ranged from 37 percent of all successions in 2004 to 16 percent of those reported in 2008 (on average, 26 percent for the period). The decline in successions of departing CEOs of common retirement age suggests a corresponding increase in the number of disciplinary successions. From 2006 through 2009, which is roughly the period of the financial crisis, approximately 80 percent of all succession events were associated with CEO dismissals. In more recent months, the rate of CEO retirements has increased.
Inside promotions and outside hires
In 2009 and 2010, 25 percent of successions involved an outsider CEO appointment, which is consistent with the upward trend in the hiring of outsiders that has been recorded in the last two decades.
Joint election as board chairman
Based on a detailed review of 56 recent successions, only 16 percent involved the immediate joint appointment of an individual as CEO and chairman of the board of directors. Based on press release disclosures, 61 percent of departing CEOs remained as board chairman for at least a brief transition period, typically until the next shareholder meeting.
The study is complemented by a review of ten cases of CEO succession that made headlines in the past two years and a discussion of the major episodes of shareholder activism on the subject. An appendix provides a set of guidelines for the board of directors of companies facing CEO succession and leadership development issues. The full report will be available in early July.  The research conducted for the report was possible thanks to the generous support of CTPartners.
The 2011 CEO Succession Report, Report #1478-11-RR, The Conference Board