In today’s high-stakes corporate environment, poor stock performance is proving increasingly costly for top executives in the U.S., with boards showing less tolerance for CEOs who underperform. A new report by The Conference Board, titled "CEO Succession Practices in the Russell 3000 and S&P 500: 2024 Edition," reveals that lagging stock prices have become one of the main triggers for CEO turnover. The report indicates that boards are now quicker to oust CEOs when shareholder returns lag behind industry benchmarks, often preempting moves by corporate activists demanding leadership changes. Despite this trend, the selection of new CEOs remains surprisingly traditional, with a strong preference for insiders familiar with the company’s culture and processes.
Increased CEO Turnover Linked to Financial Underperformance
According to the report, 42% of S&P 500 companies that replaced their CEOs in 2024 had stock returns in the bottom quartile of their industry, up significantly from 30% in 2017. Among the broader Russell 3000 index, which tracks the largest 3,000 U.S. companies, the figure is even higher at 45%, up from 29% in 2017. These figures highlight a shift in boardroom dynamics where financial performance—particularly stock price—plays a decisive role in determining a CEO’s tenure.
Blair Jones, managing director at Semler Brossy and co-author of the report, notes that boards are now more willing to act swiftly when a CEO fails to meet performance expectations. “Corporate boards are clearly becoming less patient with underperformers,” she said. The report suggests that external pressures, such as economic volatility, supply chain challenges, and geopolitical tensions, are no longer seen as justifiable reasons for poor financial results.
Activist Investors Turn Up the Heat on Boards
The report also highlights how activist investors have ramped up their scrutiny of underperforming companies, adding pressure on boards to replace CEOs before activists can raise demands. The growing influence of corporate activists has increased the urgency for boards to take control of executive changes to avoid being pressured into reactive measures. By acting proactively, boards hope to maintain stability while placating shareholder concerns.
Several high-profile CEO changes have recently occurred under the spotlight of activist scrutiny. Starbucks and Bloomin’ Brands in the U.S., as well as Swiss giant Nestlé, all appointed new CEOs in response to activist or shareholder dissatisfaction with performance. Additionally, activist investors have targeted Southwest Airlines and Air Products and Chemicals, advocating for changes in leadership or succession planning, particularly for companies with long-serving or underperforming leaders.
Preference for Insider Candidates Remains Strong
Despite the rapid turnover, corporate boards continue to favor insiders when choosing new CEOs, adhering to long-standing recruitment patterns. Data from The Conference Board’s report reveals that 77% of new S&P 500 CEOs and 59% of new Russell 3000 CEOs in 2024 were promoted from within. These numbers reflect a consistent trend over the past decade, with insiders—often former chief operating officers, presidents, or chief financial officers—being groomed for the top job.
Boards’ preference for internal candidates stems from the perception that they bring stability and continuity, minimizing disruptions in leadership transitions. Company veterans are also perceived as having a deep understanding of corporate culture and established relationships with stakeholders, allowing them to transition smoothly into the CEO role.
Jason Schloetzer, co-author of the report and a professor at Georgetown University, explained that boards still tend to favor traditional CEO profiles. “The outcome of the succession process looks quite similar to what it has been the last decade, with companies leaning towards white men in their early 50s who have been chief operating officers,” Schloetzer remarked. This preference underscores how boards continue to prioritize experience and corporate familiarity over diversity and fresh perspectives.
Challenges in Achieving CEO Diversity
While more women and minority candidates are rising to CEO roles, significant gaps remain. The report notes a record high of female CEOs in both the S&P 500 (9.5%) and the Russell 3000 (7.6%) this year. However, most of these female CEOs lead smaller companies with annual revenues under $5 billion, and they are primarily found in sectors like health care, consumer discretionary, and materials.
This disparity points to an ongoing challenge in corporate America: while there is a growing recognition of the need for diverse leadership, boards often remain conservative in their choices, particularly at the helm of larger companies. Experts note that a broader push for diversity across all levels of corporate leadership may eventually filter up to the CEO level, but for now, the top executive role largely remains occupied by individuals with traditional backgrounds.
The Future of CEO Selection and Corporate Governance
As the landscape for corporate leadership continues to evolve, experts predict that CEO turnover could remain high, especially with increasing economic pressures and activist scrutiny. Boards will likely continue their preference for internal candidates while grappling with the need to modernize and diversify executive leadership.
Observers suggest that evolving corporate governance practices could shift boardroom priorities toward greater diversity and adaptability in CEO succession planning. Companies might adopt a more flexible approach to leadership transitions, balancing the continuity offered by insiders with the innovative potential of external candidates.
For now, however, the report by The Conference Board suggests that while boards are quicker to replace underperforming CEOs, their strategies for selecting replacements remain rooted in long-standing practices. As activist pressure and market volatility persist, how boards handle CEO succession will play a crucial role in shaping the future of corporate America.
(Source:www.usatoday.com)
Increased CEO Turnover Linked to Financial Underperformance
According to the report, 42% of S&P 500 companies that replaced their CEOs in 2024 had stock returns in the bottom quartile of their industry, up significantly from 30% in 2017. Among the broader Russell 3000 index, which tracks the largest 3,000 U.S. companies, the figure is even higher at 45%, up from 29% in 2017. These figures highlight a shift in boardroom dynamics where financial performance—particularly stock price—plays a decisive role in determining a CEO’s tenure.
Blair Jones, managing director at Semler Brossy and co-author of the report, notes that boards are now more willing to act swiftly when a CEO fails to meet performance expectations. “Corporate boards are clearly becoming less patient with underperformers,” she said. The report suggests that external pressures, such as economic volatility, supply chain challenges, and geopolitical tensions, are no longer seen as justifiable reasons for poor financial results.
Activist Investors Turn Up the Heat on Boards
The report also highlights how activist investors have ramped up their scrutiny of underperforming companies, adding pressure on boards to replace CEOs before activists can raise demands. The growing influence of corporate activists has increased the urgency for boards to take control of executive changes to avoid being pressured into reactive measures. By acting proactively, boards hope to maintain stability while placating shareholder concerns.
Several high-profile CEO changes have recently occurred under the spotlight of activist scrutiny. Starbucks and Bloomin’ Brands in the U.S., as well as Swiss giant Nestlé, all appointed new CEOs in response to activist or shareholder dissatisfaction with performance. Additionally, activist investors have targeted Southwest Airlines and Air Products and Chemicals, advocating for changes in leadership or succession planning, particularly for companies with long-serving or underperforming leaders.
Preference for Insider Candidates Remains Strong
Despite the rapid turnover, corporate boards continue to favor insiders when choosing new CEOs, adhering to long-standing recruitment patterns. Data from The Conference Board’s report reveals that 77% of new S&P 500 CEOs and 59% of new Russell 3000 CEOs in 2024 were promoted from within. These numbers reflect a consistent trend over the past decade, with insiders—often former chief operating officers, presidents, or chief financial officers—being groomed for the top job.
Boards’ preference for internal candidates stems from the perception that they bring stability and continuity, minimizing disruptions in leadership transitions. Company veterans are also perceived as having a deep understanding of corporate culture and established relationships with stakeholders, allowing them to transition smoothly into the CEO role.
Jason Schloetzer, co-author of the report and a professor at Georgetown University, explained that boards still tend to favor traditional CEO profiles. “The outcome of the succession process looks quite similar to what it has been the last decade, with companies leaning towards white men in their early 50s who have been chief operating officers,” Schloetzer remarked. This preference underscores how boards continue to prioritize experience and corporate familiarity over diversity and fresh perspectives.
Challenges in Achieving CEO Diversity
While more women and minority candidates are rising to CEO roles, significant gaps remain. The report notes a record high of female CEOs in both the S&P 500 (9.5%) and the Russell 3000 (7.6%) this year. However, most of these female CEOs lead smaller companies with annual revenues under $5 billion, and they are primarily found in sectors like health care, consumer discretionary, and materials.
This disparity points to an ongoing challenge in corporate America: while there is a growing recognition of the need for diverse leadership, boards often remain conservative in their choices, particularly at the helm of larger companies. Experts note that a broader push for diversity across all levels of corporate leadership may eventually filter up to the CEO level, but for now, the top executive role largely remains occupied by individuals with traditional backgrounds.
The Future of CEO Selection and Corporate Governance
As the landscape for corporate leadership continues to evolve, experts predict that CEO turnover could remain high, especially with increasing economic pressures and activist scrutiny. Boards will likely continue their preference for internal candidates while grappling with the need to modernize and diversify executive leadership.
Observers suggest that evolving corporate governance practices could shift boardroom priorities toward greater diversity and adaptability in CEO succession planning. Companies might adopt a more flexible approach to leadership transitions, balancing the continuity offered by insiders with the innovative potential of external candidates.
For now, however, the report by The Conference Board suggests that while boards are quicker to replace underperforming CEOs, their strategies for selecting replacements remain rooted in long-standing practices. As activist pressure and market volatility persist, how boards handle CEO succession will play a crucial role in shaping the future of corporate America.
(Source:www.usatoday.com)
