CEO Turnover: Emerging Trends, Causes, and Solutions

by Thuy Sindell, PhD. and Milo Sindell, MS.

Ill willed CEO’s beware, your days may be numbered. Professional services titan PWC has released a report on the biggest changes in the executive world between 2011 and 2016 [1]. Their main finding was that the number of CEOs forced to resign from their positions as a result of “ethical lapses” increased 36% worldwide.

The report, which studied the 2,500 largest corporations in the world between 2011 and 2016, found that CEO turnovers for ethical lapses more than doubled in the US and Canada and more than tripled in the BRICs (Brazil, Russia, India, China.) 2015 had the highest CEO turnover rate ever. In other words, CEOs in the US/Canada were twice as likely to lose their jobs for after being caught doing something they should not have done. Why did this happen?

1. Additional scrutiny on corporations. After the drama of the 2007 financial crisis, the public became much less willing to take companies at their word when they claimed everything was on the up and up.
2. Social media. Not only did the public become more suspicious, they grew more organized and communicative. A single dissatisfied employee’s tweet can bring the full weight of the internet’s wrath down on a company’s head.
3. Corporate digitization. It wasn’t just the public who moved to cyberspace. Digital communications can be a dishonest executive’s nightmare. They might not remember what they emailed on May 4, 2012, but their computer does and that info could prove crucial evidence in an investigation of wrongdoing.
4. Expansion into new markets. Finally, recent years have seen an explosion of corporate endeavors in emerging economies. Abuses may become more commonplace while a company is making ingress into a new, less stringently-regulated market. Like anyone else, executives are more likely to behave badly if they think nobody’s watching them.

The report’s main area of interest, though, was the seismic shift in how many CEOs are laid off for ethical lapses. Here are some other useful things to know about this change and how it manifests around the globe:

1. US vs. Europe. In the US, the larger the corporation was, the more likely the CEO was to get tossed out for bad behavior. In Western Europe it was the opposite: smaller corporations were more likely to have devils in their upper echelon- or at least, they were more likely to catch them.
2. The devil you know. CEOs forced out for ethical lapses tended to have been with the company longer than CEOs forced out for other reasons. PWC has two explanations for this: firstly, a well-tenured CEO is usually one with a reputation for being good at their job. As a result, their actions are less scrutinized. Secondly, if a CEO is persistently rewarded for negative behavior, it can warp the company culture to see that behavior as ordinary. “I learned it from watching you!”
3. Avoid the co-title. CEOs who also jointly held the title of chairman were 30% more likely to be forced out for an ethics lapse than those who were just CEOs.

The executive world is changing fast, and we don’t just mean culturally. A new wave of CEOs have come in since 2011 with a new way of doing things. Here are some of the most interesting trends in CEO turnovers of all kinds, not just for ethical lapses:

1. Top industries for turnovers. The top industries for CEO turnovers were utilities, followed by industrial and energy. Telecoms, which usually leads the pack, tumbled to sixth.
2. Women CEOs. The number of incoming CEOs who are women has continued to steadily increase, although they’re still concentrated in the same handful of fields: consumer discretionary, finance, and especially utilities.
3. Incoming CEO age. The median age of these new wave of CEOs was 53. Almost every region in the world hemmed close to this number. The major outlier? Japan, with a median incoming CEO age of 61.
4. MBA, PhD, or neither? CEOs in countries based out of emerging economies were disproportionately likely to have MBAs, while CEOs in China were thrice more likely to have an MBA than the global average. Japanese CEOs tended to have neither, often because they had spent decades climbing the ladder at one company and had no prior CEO experience.
5. CEO tenure. Lastly, average CEO tenure is steadily rising in the West, especially the US and Canada. Almost everywhere else in the world, it’s going down.

Hopefully, your first thought on reading this is how to keep evil executives from infesting your organization, not which paper trails you need shredded. PWC [2] recommends three steps to safeguard your organization:

1. Cultivate a culture of integrity. The leadership must clearly and consistently encourage ethical behavior- and be seen practicing what they preach. Nobody likes a hypocrite.
2. Tighten up business processes. It’s crucial to ensure abuse is not rewarded. Take a good hard look at potential areas for abuse, what systems of reporting are in place, and whether your compliance program actually prevents violations.
3. Consider the company culture. Are you encouraging transparency, or shoving those who speak up to the side? Is it an open culture where employees have room to make their own decisions, or a “command and control” culture where one bad apple in leadership can spoil the whole batch?

[1] Global findings_2016 CEO Success Study, March 2017
[2] Global findings_2016 CEO Success Study, March 2017