Report: Rate of CEO dismissals on the rise

New York City -- A report released Thursday by The Conference Board said that the rate of dismissal of CEOs in the S&P 500 due to disciplinary actions has increased in recent years, while 25% of boards of directors facing a chief executive succession have opted for an outside hire.



According to the 2011 CEO Succession Report, 51 CEOs in the S&P 500 left their post in 2010, making the rate of CEO succession approximately 10%, consistent with the average number of annual succession announcements from 2000 through 2009.



“One of the most important strategic risks that a corporation must manage is the succession of its chief executive officer,” said Jason Schloetzer, assistant professor at the McDonough School of business at Georgetown University and a co-author of the report. “This is true today, more than ever, due to the recent challenges posed by a variety of economic factors.”



Key findings of the report included: The probability of CEO succession is higher following bad performance. In the 2000-2010 period, the succession rate of CEOs of poorly performing companies ranged from 21% in 2002 to 10% in 2009, while the rate for better performing companies varied from 7 to 12% (also in 2002 and 2009, respectively). Similarly, the probability of CEO succession is higher for CEOs who are at least 64 years of age. In the 2000-2010 period, their succession rate ranged from 27% in 2005 to 9% in 2008, while the rate for younger CEOs ranged from 9% in 2000 and 2001 to 13% in 2005.



During the 2000–2010 period, there was a declining trend in CEO retirements. The rate of retiring CEOs ranged from 37% of all successions in 2004 to 16% of those reported in 2008 (on average, 26% for the period). The decline in successions of departing CEOs of common retirement age suggests a corresponding increase in the number of disciplinary successions, according to the report. From 2006 through 2009, which is roughly the period of the financial crisis, approximately 80% of all succession events were associated with CEO dismissals. In more recent months, the rate of CEO retirements has increased.



In 2009 and 2010, 25% of successions involved an outsider CEO appointment, which is consistent with the upward trend in the hiring of outsiders that has been recorded in the last two decades.