News

Why Are CEOs Jumping Ship?

(Article by Dana Wilkie originally appeared in SHRM

Departures may be linked to economic fears, employee expectations, struggles to find top talent

CEO turnover appears to be at an all-time high, and while some exits can be blamed on ethical lapses, such as fraud or sexual harassment, others have workplace experts wondering what’s afoot.

According to a report by strategy and consulting company PwC, CEO turnover at the world’s 2,500 largest companies climbed to 17.5 percent in 2018—3 percentage points higher than the 14.5 percent in 2017.

And CEO tenure at the nation’s Fortune 500 companies has dropped to about five years, according to a report published in the Harvard Law School Forum on Corporate Governance and Financial Regulation.

Economic Fears?

The fear of a coming recession may be one issue driving companies’ boards to seek new leaders, workplace experts say.

“When boards hear ‘recession,’ they panic,” said Carisa Miklusak, CEO of tilr, a Cincinnati-based company that develops algorithms to vet and place job seekers. “And when you are in a state of panic, you often make rash or bad decisions. When boards prepare for a recession, they often think they’d better get someone ‘more this or that’ before the recession hits. Rather than trying to work with their current leader to prepare, they jump the gun by exploring the ‘grass is greener’ option.”

Steve Spires disagreed. Why wouldn’t boards want continuity, instead of change, during such times? he asked.

“I do not believe that fears of recession have a great influence on [CEO] tenure,” said Spires, managing director of career services and a senior executive coach  with BPI group, a Chicago-based business consultancy. “Leaders of large organizations are dealing with economic realities and forecasting constantly, and most tend to be out in front of economic indicators. It’s best to make major leadership changes in times of stability, so maybe the trend [of CEO exits] is indicating that boards are not currently fearing a near-term recession.”

The Changing Workplace

The historically low unemployment rate means many companies are having a hard time finding talented workers, noted Sharon Hulce, president and CEO of Employment Resource Group in Appleton, Wis. Meanwhile, Baby Boomers are retiring without necessarily transferring institutional knowledge to younger workers, who aren’t inclined to stay very long in one job.

All of that, she said, can ultimately make a CEO look bad because “without a high-performing team, it is impossible to be and remain competitive.”

And as companies compete in a global economy, demands on boards and their CEOs have grown increasingly complex, Spires said.

“The world has changed significantly in the past decade,” he said. “The speed of everything is faster today, and the need to perform is always pressed by stakeholders and shareholders and therefore, boards, leading to the faster change at the top and especially for bigger and more active boards of directors. As complexity grows in times of rapidly changing environments, often the thought is to change the top fast, and that will change the rest faster.”

Workers, especially younger ones, are demanding more from their workplaces—everything from flexible schedules to leaders who take public stands on and demonstrate activism in the causes these younger workers care about, said Henry Albrecht, CEO of Limeade, an employee engagement app. Employees who don’t see these things at work aren’t inclined to stay very long, he said.

And that can reflect poorly on a company’s top leader.

“To thrive in our current environment, CEOs need to understand that what’s good for people is also good for business and for their own job security,” he said.

Matt Sunbulli is CEO of Fishbowl, maker of an app professionals use to converse about issues facing their industries and companies. He agreed that the expectations for CEOs “are higher than they’ve ever been … most notably in that employees expect more from them.”

For example, he noted, a poll of one company’s employees—which was shared on Fishbowl’s platform—found that 83 percent of the employees disapproved of the company’s chairman representing the firm on one of President Donald Trump’s business advisory councils. In 2017, several CEOs quit the councils after Trump appeared to show sympathy for some of the people who marched alongside neo-Nazis and white supremacists.

“The representation [on the council] presented a conflict in that [the company’s] business interests and the cultural interests of its employees did not align,” Sunbulli said. “I believe this is a relatively new dynamic for CEOs to have to navigate, and particularly at larger companies, this can add a tremendous amount of inward pressure on CEOs.”

Company culture is also a top priority for workers, especially younger ones, Albrecht said. He pointed to the recent Business Roundtable commitment to prioritize employees over shareholders, a move that suggests CEOs are realizing that a company’s bottom line is closely tied to happy, satisfied employees. The Business Roundtable is a CEO association of almost 200 of the most prominent companies in the U.S.

“What’s historically been just an HR issue is now a board-level discussion,” Albrecht said. “Leaders that don’t invest in culture will struggle to attract top talent, improve performance, build loyalty, drive innovation and ultimately bolster business success.”

Unfortunately, Albrecht said, those at the top of an organization are often the last to know if company culture is suffering.

“They need to put resources toward evaluating employee perceptions of culture and take action on the results … or [the culture] will crumble—often taking its leader down with it,” he said.

For instance, he said, CEOs should ask these questions:

  • Is decision-making top-down or collaborative?
  • Are teams disjointed or integrated?
  • Is the organization hierarchical or flat?
  • Do employees feel micromanaged or autonomous?
  • Is there a feeling of secrecy or transparency?

“These are cultural attributes that often go unnoticed or ignored until it’s too late,” he said. “The worst thing CEOs can do is assume that if they’re not hearing complaints, everything is fine.”