Q #144: Why aren’t more CEOs losing their jobs?

In this series, Bob Morris poses a key question and then responds to it with material from one or more of the business books he has reviewed for Amazon and Borders.

I subscribe to strategy + business magazine but anyone can access material on its Web site at no cost. (More about that later.) In the latest online edition, the results of Booz Allen’s annual research study, CEO Succession 2008: Stability in the Storm, conducted by Per-Ola Karlsson and Gary L. Neilson, indicates that the financial crisis has held down the rate of CEO turnover — for now. Here is an excerpt:

“With stock prices plummeting, profits evaporating, and millions of workers worldwide joining the ranks of the unemployed, one might assume that the chief executives of the world’s largest companies lost their jobs in dramatic numbers in 2008. But that was not the case. CEOs demonstrated remarkable recession resistance last year. Although CEO turnover rose slightly on a global basis, from 13.8 percent in 2007 to 14.4 percent in 2008, Booz & Company’s annual survey reveals that turnover actually declined in North America and Europe, the regions hit first and hardest by the economic downturn. Succession rates in these bruised economies decreased by 0.5 and 1.9 percentage points, respectively — all the more surprising when one considers that Europe and North America had led other regions in CEO turnover in the two previous years.”

With regard to the question posed, opinions vary among the experts (of course) but there seem to be general agreement that

1. A CEO cannot be held wholly responsible. Blame (if that’s the word) for the impact of the national economy’s decline on a company must be shared with governing board members as well as with the federal government’s economic policies. Sometimes labor unions are also included.

2. “A known devil is preferred to an unknown devil.” I am unaware of the origin of this aphorism, presumably a first-cousin to “A known devil is preferable to an unknown angel.” It suggests that people do not so much fear change as they fear the unfamiliar. It is never certain that the new CEO will be more effective than the one replaced.

3. Replacing a CEO is very complicated and very expensive. Especially when their companies are struggling through a distressed economy such as the one we have today, governing boards are understandably reluctant to make the situation even more complicated, to create more tension and anxiety, etc. Also, the fact remains that most CEOs have a platinum parachute near at hand. To reiterate, it is never certain that the new CEO will be more effective than the one replaced.

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Comments, questions, requests, or suggestions? Please share them. They will be most welcome and I thank you for them. Best regards, Bob

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