As COVID-19 hit the US in early 2020, CEOs largely elected to lead their companies through the pandemic crisis, pausing an upswing in successions. The Conference Board has just published its CEO Succession Practices report for 2021. The report examines whether that decline in CEO exits has continued, or if the market has reverted to the pre-crisis increases in CEO turnover.
Several trends are worth highlighting, including:
- After initially slowing, CEO succession rates picked back up in the second half of 2020, but still showed a notable dip.
- The S&P 500 succession rate declined from 13.5% in 2019 to 11.6% in 2020. The five-year trend from 2016 to 2020 was 12.3%.
- The greatest year-over-year declines were in Consumer Discretionary (down from 17.9% to 12.4%) and Consumer Staples (down from 20.4% to 14.8%).
- For S&P 500 companies, the most likely causes of CEO turnover were financial underperformance (33%) and personal misconduct (33%). Forced CEO departures continue to decline, from 9.5% in 2017, to 7.6% in 2019, and 5.2% in 2020.
- There was little improvement in CEO diversity.
- Only about 6% of both Russell 3000 and S&P 500 companies have female chief executives.
- Trends indicate slow improvements – 8% of incoming Russell 3000 CEOs were women as compared to 4.3% in 2017.
- Approximately 13% of incoming S&P 500 CEOs are women. That is double the average rate from 2001 – 2019 (6%) and the highest since 2013.
- 99% of Russell 3000 companies and 96% S&P 500 companies did not disclose the CEO’s ethnicity in the proxy statement. No S&P 500 company disclosed the ethnic background of a 2020 incoming CEO.
- Three-quarters of incoming CEOs were internal promotions.
- The average tenure in-company was 15.5 years.
The report also highlighted that the rate of turnover narrowed between companies performing in the bottom quartile of their industry (13%) and the three higher quartiles (10.5%). The volatility of 2020 is likely a significant factor in those rates. Boards may have felt a CEO performed well even if the stock price saw substantial declines during COVID-19. Interestingly, the report notes this may indicate a shift away from a TSR-based performance model to a broader stakeholder wellbeing performance model (including ESG).
