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A record number of CEOs will leave their jobs in 2007, setting a new high for the third straight year. Expect more than 1600 chief executive officers from big, mostly public firms to vacate their corner offices—by choice or by demand. The average stay for a CEO is now 5.5 years, down from seven years in 2005.
The turnover trend affects all industries, but it's greatest in health care. That's partly a result of pressure to develop new drugs to replace those losing patent protection and because of public pressure on drug prices, says John Challenger, CEO of the Chicago-based outplacement firm Challenger, Gray & Christmas. Turnover is also high at firms specializing in information technology and financial services.
Among the reasons for rising turnover:
- Stricter corporate governance rules are bogging down CEOs of public firms with lots more paperwork and regulatory duties. Many are calling it quits to take the top jobs at private firms, which have fewer compliance rules.
- Scandals are also having an effect. Improper backdating of stock options to boost personal profit has forced 18 CEOs out of their jobs so far, with more likely in 2007. Aside from this, securities cops will remain aggressive in trying to uncover the next big scandal and catch other bigwig Wall Street cheats.
- Shareholder activism, including pressure from labor unions and hedge funds, puts more stress on management and affects everything from who sits on corporate boards to how much CEOs should earn.
- The boom in mergers and acquisitions, which will continue this year, cost some CEOs their jobs. There's usually only one room for one top executive when two companies combine forces.
- The slowing economy also takes a toll on profits, which ultimately costs some CEOs their jobs. Witness the recent departures of Robert Nardelli at Home Depot and Paul Pressler at Gap.
High CEO turnover has its ups and downs for investors. It's a plus for shareholders that top managers are being held more accountable for their decisions. Good CEOs get to stay, while the bad ones get shown the door. On the flip side, volatility can hurt a firm's business and unnerve partners, vendors and investors.
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