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Penny Herscher Headshot

The Rise in CEO Turnover Is a Sign of the Times -- Both Good and Bad

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In the first 9 months of 2008 the number of CEOs who left their jobs hit a record high according to Challenger, Gray & Christmas Inc -- 1,132 by October and when the 2008 full year tally is completed the total will be higher than ever before.

What is going on behind these numbers is two forces of change, both of which should improve the caliber of leadership and cause boards to act.

First the economic crisis makes CEOs more vulnerable. Their companies and markets are in crisis, in most cases their stocks are significantly down and they are under pressure from shareholders and employees to improve performance. And when a CEO leaves he usually "resigns" - which is a euphemism for a difficult conversation in which both the board and the CEO agree it would be best for the CEO to step down.

More visibility than that is exceptional - like when the Cadence Design Systems CEO Mike Fister and his top 4 executives all "resigned" on the same day - you know they were summarily fired and there is a cleanup job to be done there - or when Dianne Greene left VMWare openly stating she did not agree. Or when the CEO has clearly been recruited into a new job. But usually it's a civilized, mutual agreement.

In tough times good boards are looking at whether they have the right CEO. The skills needed to grow a company in a rising market are often different skills than operating and preserving a large company in a down market. And in down markets leadership and character is more important than ever.

The second change at work is the unprecedented levels of transparency shareholders now have. This transparency comes from the combination of new executive compensation reporting requirements and the openness of information flow on the web. In 2006 board compensation committees were first required to file a Compensation Discussion and Analysis report - the CD&A - at the beginning of the year describing every single element of compensation the top executives are receiving and the rationale behind it. This means that finally shareholders can see everything, and so have the knowledge to question boards in the shareholder meetings. Carol Bartz's new compensation package at Yahoo is an example of a CEO's pay lining up with shareholder interests and it's all publically filed.

I am hoping that with a spirit of change in Washington, a tough economic environment and the unprecedented level of visibility the CD&A, the web and bloggers provide into what's really happening in a company - that more boards will ask the hard questions about whether they have the right CEO or not. Let's not have a repeat of leaving Jerry Yang in as CEO of Yahoo for 18 months too long, and let's have the GM board hold Rick Wagoner accountable to turn GM around or get out. After all, the most impactful thing a board does is hire and fire the CEO.