By Guido Stein & Manuel Gallego
Companies statistically dismiss twice as many CEOs in bad economic times as in good. Certainly, many senior executives have lost their jobs lately. Yet this new wave of dismissals masks a deeper trend: in the past two decades, the average tenure of a CEO has halved, and yet, in less than a third of the cases, the reason for their departure was solely because of poor performance.
Why the increased turnover at the top? In the past, nine times out of 10 the answer was simple: companies hire a new CEO because the old one retired, fell ill or died. Nowadays the proportion has almost reversed: a bit more than 10 per cent is due to natural reasons, the rest lies on decisions taken at the top.
This article deals with those decisions. The sources and insights come from the author´s personal contact with more than 400 CEOs who have participated in the International Advanced Management Programs that he teaches at IESE, his work as consultant and board member, and his research in this field. The empirical data analyzed is taken from 184 CEO of the largest Spanish listed companies between 2001 and 2010. According to the literature the conclusions can be considered generally representative of all western countries. The author is currently confirming these findings in the German speaking economies.
Mapping the territory
Contrary to popular wisdom, bad results are not the main reason that the managing directors of large companies lose their jobs. Although poor performance makes them more vulnerable to being sacked, other factors have to be considered in order to understand the dismissal of CEOs, such as the power they wield within the organization, the availability of alternative candidates and the board’s expectations and loyalty.