Leadership

Report: CEO Turnover—and Ethical Lapses—on the Rise Globally

By / Jul 24, 2019 (tadamichi/iStock/Getty Images Plus)

A new report from PricewaterhouseCoopers found that corporate CEO turnover soared in 2018, with ethical lapses—rather than financial challenges or board conflicts—increasingly to blame.

Last year was the worst year for corporate turnover in roughly two decades—and the worst in a decade for forced exits.

That’s according to PricewaterhouseCoopers’ Strategy& CEO Success study, which found that 17.5 percent of companies around the world, and 14.7 percent in the U.S. and Canada, saw CEO turnover in 2018. The former number is the highest in the report’s 19-year history; the latter is the highest in North America since 2008. Leaders were forced out of their roles at a rate of 3.6  percent globally and 2.9 percent in the U.S. and Canada—both the highest rates reported since 2008.

But the real story, as PwC explains on its Strategy + Business site, is why the departures happened last year.

“The overall rate of forced turnovers was in line with recent trends, at 20 percent. But the reasons that CEOs were fired in 2018 were different,” the story states. “For the first time in the study’s history, more CEOs were dismissed for ethical lapses than for financial performance or board struggles.”

The recent rise in attention given to executive misconduct in the wake of the #MeToo movement, combined with decreasing tolerance for such misconduct by executive boards, may have led to ethical issues becoming a key factor in the departures of many CEOs last year.

The report also highlighted two other key trends: One, CEOs in the corporate world are staying in their roles for less time, with the average tenure hovering around five years, down from more than eight years nearly two decades ago. (However, plenty of CEOs have stayed in their roles for long periods—with the odds of a long tenure increasing if the CEO was promoted from within, rather than hired from the outside.)

The other trend involved women in the CEO role. In 2017, 6 percent of new CEOs were women, an all-time high for the survey. However, the rate fell to 4.9 percent last year. While still the third-highest rate in the study’s 19-year existence, it nonetheless highlights inconsistencies in women getting hired as CEOs.

The report noted that some of this may be regional in nature: “Unlike in 2017, when the record high was driven by a 9.1 percent spike in incoming women CEOs in the U.S. and Canada, the largest share of women CEOs in 2018 resulted from sharp increases in Brazil, Russia, India, China, and ‘other emerging’ countries.”

Additionally, some fields were more likely to see women take the top role than others: No industrial or information technology firms studied by PwC saw a female leader take the helm in 2018.

In the piece, authors Per-Ola Karlsson, Martha Turner, and Peter Gassmann note that boards not only face a challenging balance when deciding when a CEO must be replaced, but also in following up a successful leader with a worthy successor.

“Boards have to take care not to become complacent,” the report stated. “Term limits, mandatory retirement ages, or other mechanisms aimed at limiting CEO tenure are not a panacea. Boards have to continuously evaluate whether the person sitting in the company’s top slot is up to the task as conditions change.”

Ernie Smith

Ernie Smith is the social media journalist for Associations Now, a former newspaper guy, and a man who is dangerous when armed with a good pun. More »

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