Past year sees record number of top-level CEOs dumped for ethical breaches

05 June 2019 4 min. read
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The turnover of top-level CEOs reached a record high last year according to a study by Strategy& – with ethical lapses claiming more scalps than ever before.

A recent study by PwC’s global strategy consulting arm Strategy& has revealed 2018 as the most turbulent year in the past twenty for the world’s top-level CEOs, with a record high 17.5 percent turnover rate recorded at the world’s largest 2,500 public companies. While forced turnovers remained steady at 20 percent, two out of five of those departing chiefs were ousted due to ethical breaches – at a rate 50 percent higher than the year prior.

According to Strategy&, the rise in these types of dismissals (defined by the consultancy as the result of a scandal or improper conduct by the CEO or other employees, with examples including fraud, bribery, insider trading, environmental disasters, inflated resumes, and sexual indiscretions) reflects several societal and governance trends, such as more aggressive regulatory intervention and greater accountability around sexual harassment.Tide still risingThe latter, say the authors, has been in part brought about by the rise of the “Me Too” movement (a separate global survey from Deloitte found that more than two thirds of C-level business executives had been motivated by the movement in pursuing inclusive growth strategies) and the increasing propensity of boards of directors to adopt a zero-tolerance stance toward executive misconduct.

These social trends, however, haven’t translated to increased gender equality at the very top, with the percentage of new female executives replacing incumbents falling over the past year, down from 2017’s record high to 4.9 percent – keeping in mind still that more than two thirds of the CEO turnover was through planned successions. Further to this, not one single woman became a chief of a leading information technology company in 2018.Women in the corner officeElsewhere, of the incoming crop of CEOs – which more broadly in the consulting sector have included among others Carmine Di Sibio at Ernst & Young, Cognizant’s Brian Humphries, and Martine Ferland at Mercer – around one quarter have had prior public company CEO experience, a third have international experience, the same number holds an MBA, 15 percent are foreign nationals, and 17 percent were company outsiders (the lowest rate since 2007).

Meanwhile, 28 percent of the newly appointed CEOs in 2018 have been with just the one company their entire careers (with the average medium age of the group as a whole being 58 years). According to the data, company insiders promoted to the highest post have are far higher chance of longevity, with Strategy& finding that 84 percent of long-serving CEOs over the past 15 years were such – a figure rising to 90 percent of departures last year.Declining performance

During the course of the last decade and a half, the average median tenure spent at the top prior to departure (of the total 5,253 successions over that period) has been five years – yet, close to one fifth of CEOs manage to remain in the role for a decade or more, the average median tenure of this group being around 14 years. Successors to long-serving CEOs however face a tough task, with close to half of the replacements seeing the company’s TSR drop by one or more quartiles.

This is particularly pronounced for successors to high performing CEOs, such that in cases where the company was in the top quartile for TSR (total shareholder return), 69 percent of the incoming bosses soon ended up in the bottom two. Following a legend, says the firm, is not for the faint of heart, and the longer the long-serving CEO’s tenure, the worse the successor performed. These fresh faces were also far more likely on average to be forced out, at a rate of 35 percent.

Succeeding long-serving CEOs is clearly very challenging,” concludes Per-Ola Karlsson, Strategy& partner and leader of the firm's Organisation, Change and Leadership Practice in the Middle East. “Their successors typically both deliver lower returns to shareholders and are noticeably more likely to be dismissed than the legend they succeeded as well as their peers.”