CEO Transitions

Every year, Spencer Stuart monitors S&P 500 companies for CEO transitions. Over the past six years the number of CEO transitions has been consistently in the 50’s. The last dip in the numbers was in 2012 in which 37 CEOs transitioned. Last year the number of transitions was down from 59 to 55.

Where the companies ranked in the S&P 500 didn’t appear to affect the number of transitions. The top 100 companies had a 24% rate, companies ranked 301- 400 had a 27% rate, the other companies had a transition rate in the teens (13% – 18%).

The reason for leaving was overwhelmingly a personal decision by the CEO to either retire or step down. This accounted for almost 7 in 10 transitions. While it is a high percentage, it’s actually down from last year when the number was almost ¾ of transitions. This supports the data that baby boomers are leaving the workforce, creating a leadership void due to the smaller generation X not being able to fill all of the positions that are open.

The percentage of CEOs who resigned under pressure was up nearly 50% year over year, coming in at 22% according to company reports. Five percent left for health reasons, and three percent left due to M&A activity.

Perhaps a result of baby boomers leaving the workforce, the average age of incoming CEOs is coming down. In 2018 it was 54 versus 59 in 2017. Only one of the new CEOs in 2018 is female, compared to seven in 2017. This will be interesting to watch in the coming year to see if the number increases.

According to the report, “a higher percentage of the new CEOs (27%) were hired from outside rather than promoted from within their companies. In 2017, 31% of new CEOs were hired from the outside, following a three-year decline in external hires (reaching a low of 10% in 2016).”

The report goes on to mention, “the longer-term trend has been toward developing internal CEO successors, due in part to the Sarbanes-Oxley legislation, the professionalization of the human resources function and boards’ increasing commitment to long-term CEO succession planning as a best practice. The reversal of that internally weighted trend in 2017 and 2018 may be attributed to a variety of factors, including individual company strategy shifts requiring new and different leadership, activist investors, the #MeToo movement, digital disruption and the intense pace of change. We will continue to monitor these trends.”

Another interesting finding was the correlation of CEOs reason for departure and the impact on the replacement coming from either inside or outside the organization. When the departure is due to pressure, the replacement is more likely to come from the outside.

  • 38 CEOs retired or stepped down; 31 (82%) of their successors were promoted from within and seven (18%) were hired from the outside.
  • 12 CEOs resigned under pressure; five (42%) of their successors were promoted from within and seven (58%) were hired from the outside.

The report also breaks out the new CEO backgrounds into five categories:

  • internally promoted CEOs
  • externally recruited CEOs
  • former company executives
  • board directors who take on the role of CEO;
  • “insider-outsiders” recruited to the company and promoted to CEO within 18 months

As it relates to the board, the percentage of new CEOs who also assumed the duties of board chair more than doubled year over year to 15%. Relatedly, 35% of the departing CEOs continued with the company as the board chair. This is down from 51% in 2017.

For guidance and support with a CEO transition, send us a note. Our executive recruiters at Sheer Velocity have placed CEOs across a number of industries and companies backed by private equity, venture capital, private and publicly held companies.