Chief Executive Officer (CEO) departures at major U.S. companies have surged dramatically in 2023. According to executive outplacement firm Challenger, Gray & Christmas, 1,425 CEOs left their roles in the first 9 months of 2023 - up 47% from 2022 and the highest January-September total since tracking began in 2002.
Several factors are driving this acceleration in CEO turnover:
Why CEO Turnover Is Increasing
Lower CEO tenures - The median CEO tenure has declined from 10 years in 2010 to just 5 years today. Leaders have less time to deliver results before scrutiny mounts.
Activist investors - Activists aggressively target underperforming companies, often demanding CEO changes. Even well-performing CEOs are ousted if activists disagree with strategies.
Board intolerance of misconduct - Boards have minimal tolerance for scandals under #MeToo and other societal pressures. Any breach of ethics can cost CEOs their jobs.
Pandemic burnout - Leading through COVID-19 took an immense toll. Many CEOs are exhausted and ready to move on.
Tight labor market - With abundant job options, CEOs are more willing to depart if dissatisfied with their roles or boards voluntarily.
The implications of surging CEO turnover span strategy, culture, and performance.
Strategic Impacts of CEO Turnover
New CEOs often reshape corporate strategy significantly:
Divesting non-core businesses
Changing capital allocation priorities
Shifting R&D investments
Altering go-to-market approaches
This can create uncertainty across organizations regarding:
Which initiatives to continue or terminate
How to adapt functional plans to new strategic priorities
Prolonged ambiguity hampers decision-making and progress. Communicating and cascading strategic changes is vital.
Cultural Impacts of CEO Transitions
CEO transitions also reverberate culturally:
Founder CEOs have unique cultures reflecting their personalities and values
External hires aim to reinvent culture in their own image
But culture evolves slowly - forcing change risks employee disengagement
Cultural friction during transitions manifests through:
Resistance to unfamiliar norms
Nostalgia for "the way things were"
Resentment towards leadership "imposters"
Careful cultural diagnostics and change management is required to prevent talent exodus.
Performance Impacts
Numerous studies show financial underperformance amidst CEO churn:
Profit margins contract by 1-4% on average
Stock prices lag peers by 2-10% over 6-12 months
Growth stalls as organizations lose momentum
While modest individually, performance dips compound over time. Careful succession planning and onboarding help minimize turbulence.
Rising CEO Turnover Rates by Industry
The industries experiencing the greatest surge in CEO turnover in 2023 are:
Government and non-profits (+86% vs. 2022)
Hospitals (+67%)
Technology (+39%)
Manufacturing (+36%)
Finance (+22%)
Driving the turnover are:
Government - Political regime changes
Hospitals - Pandemic burnout and financial pressures
Tech - Activist investors spurring shakeups
Manufacturing - Recession impacts
Finance - Strategic realignment to digitization
Causes of Increasing CEO Departures
Beyond broad trends, the root causes behind individual CEO exits vary:
Retirement
Long-tenured CEOs stepping down remains common
But declining average CEO tenures mean fewer serve full careers
Retirement accounts for only 22% of 2023 departures
Resignation
Beyond retirement, personal decisions to leave include:
Burnout
Health issues
Career changes
Family considerations
C-suite "step-downs" allow graceful exits for struggling CEOs
Pressure
Poor performance causes many forced executive exits
Missed financial targets
Lagging stock prices
Strategic missteps
Activist investors often catalyze ousters by catalyzing board pressure
Scandals
Unethical personal behavior remains intolerable
Sexual misconduct
Substance abuse
Reputational damage
Environmental, social, or governance lapses also cost CEOs their roles
In short, both voluntary retirements and involuntary ousters are increasing.
Leadership Transition Processes
Navigating CEO changes involves careful planning and execution:
Succession Planning
Boards should continuously evaluate CEO candidates
Within the executive team
External recruits
Criteria should balance continuity and change
Insiders provide stability
Outsiders bring fresh perspectives
Multiday finalist assessments determine the fit
Selection & Announcement
Final board voting on CEO choice is highly confidential
Succession timing allows smooth transitions between tenures
Announcements highlight succession thoroughness
Leadership Alignment
The incoming and outgoing CEOs must align
To enable smooth baton handoff
Prevent mixed signals to the organization
Public unity, private discrepancies
Organizational Onboarding
New CEOs should embark on robust onboarding
Meeting critical executives
Reviewing strategies and initiatives
Diagnosing culture and politics
Outlining near-term priorities
Moving too quickly without context invites missteps
Gradual Change
Despite the pressure, avoid immediate disruption
Pause major strategy pivots 12-24 months
Seek input before shifting culture
Make changes methodically once credibility built
Balance continuity with change
Smooth leadership changeovers require extensive planning. Preventable turmoil otherwise results.
Outcomes of Poorly Managed Exits
Bungled CEO transitions jeopardize organizations through:
Financial Underperformance
Uncertain strategy causes misallocated resources
Internal turmoil distracts focus from customers
Capability gaps emerge amid talent losses
Stock prices and valuations suffer
Studies show 1-4% profit margin declines amidst chaotic changes.
Business Disruption
Delayed decisions or reactive pivots destabilize operations
Rushed or inconsistent plans sacrifice quality
Workforce morale and retention fall as culture frays
Lost productivity and focus hampers core business.
Reputational Damage
Negative publicity around power struggles tarnishes brands
Customers lose confidence in leadership and direction
Public conflicts distract from competitive offerings
Restoring reputations requires renewed delivery of superior products and services.
In summary, problematic CEO changes carry multifaceted costs. Carefully orchestrated successions avert value destruction.
Leadership Best Practices During Turnover
How can boards and executives minimize leadership turbulence?
Solid Succession Processes
Continuously assess internal/external CEO candidates
Benchmark criteria to strategic needs 3-5 years out
Conduct rigorous finalist evaluations on skill and cultural fit
Aligned Leadership Teams
Retain institutional knowledge amid injecting new perspectives
Phase executive team changes over 12-24 months
Assimilate new hires through structured onboarding
Clear Communications
Set expectations around organizational changes
Solicit input to guide decision-making
Provide reassurance amidst uncertainty
Measured Pace of Change
Rightsize near-term goals for strategy and culture
Celebrate small wins to build momentum
Avoid reactionary shifts at first signs of struggle
Continuous Learning
Analyze past transition failures openly
Instill mechanisms to institutionalize lessons learned
Treat succession as a process requiring constant refinement
With robust succession planning and onboarding, companies can master leadership transitions smoothly. Done well, changes at the top renew organizations rather than derail them. Prioritizing continuity, adaptation, and inclusive leadership enables new CEOs to catalyze prosperity.