Pressure on CEOs rises drastically

(exechange) — November 1, 2018 — Constellation Brands Inc., General Electric Co. and Pfizer Inc. are among the U.S. companies that announced a major leadership change in October 2018.

Obviously, not all of the top managers leave the position entirely on their own initiative.

Research shows that the pressure on CEOs rises drastically, reaching a high level in the second fall month. In September, it was at a low level.

Every management change is different. The departure of Constellation Brands CEO Rob Sands seems sober, the exit of General Electric CEO John Flannery appears bitter, and the move of Pfizer CEO Ian Read looks glorious.

A more detailed insight is provided by research firm exechange, which has analyzed more than 500 changes in top management of publicly traded companies from around the world and from the past 12 months, including more than 200 CEO departures in the U.S. of companies in the Russell 3000 (see Exhibit 1).

exechange uses a scoring system with a scale of 0 to 10 to measure the pressure on the departing executive and to determine the likelihood of a forced executive change. A Push-out Score™ of 0 indicates a completely voluntary management change, and a score of 10 indicates an overtly forced departure. Push-out Scores above 5 suggest strong pressure.

The Push-out Score incorporates facts from company announcements and other publicly available data. It considers not only the official reason given for the departure, but also additional evidence that weighs on the credibility of that reason. The system also interprets the sometimes-cryptic language in corporate communications, using a proprietary algorithm (see Exhibit 2).

The CEO Push-out Index™, which reflects the average Push-out Score for CEO departures in the U.S., rose to 5.8 in October 2018 from 3.5 in September 2018 (see Exhibit 3).

The index thus reached the upper half of the scale.

In October, the index was influenced by many obviously forced turnover events and leadership changes with high Push-out Scores, including the announced CEO departures at Realty Income Corp., Perrigo Co. Plc, Axalta Coating Systems Ltd., NuVasive Inc. and Aspen Insurance Holdings Ltd. In September, the index was dominated by a flood of announcements of smooth management changes. Carefully planned CEO successions are often implemented at the end of the year and officially announced around 100 days in advance.

The average Push-out Score for CEO departures in the 12-month period from November 2017 to October 2018 was 5.6.

Around 49 percent of the Push-out Scores of CEO departures in the U.S. from the past 12 months reached values between 6 and 10 (see Exhibit 4).

Almost one in two CEOs stepped down under pressure.

A Push-out Score of 6 means that six of the following nine criteria are fulfilled: unusual age, short notice, short tenure, poor share price performance, non-transparent reason, critical time, succession issues, formal anomalies and linguistic peculiarities in the announcement. When the manager is openly pushed out (e.g., “terminated for cause”), then 10 points are given.

In the past 12 months, around 33.9 percent of the CEOs in the U.S. left their post with no reason given in the announcement.

Around 6.1 percent departed “to pursue other opportunities” and around 2.4 percent “to spend time with their family,” statements that are sometimes taken as code for firings.

Around 2.9 percent left for “personal reasons,” and around 4.5 percent have been ousted with a specific reference to misconduct (see Exhibit 5).

In the past 12 months, exechange recorded the following CEO changes in the Russell 3000 index that were openly linked in the corporate announcement to alleged or actual conduct issues.

  • Axalta Coating Systems CEO Terrence Hahn resigned in October “by mutual agreement with the Board, following an investigation by outside counsel into conduct by Mr. Hahn unrelated to financial matters that Axalta believes was inconsistent with Company policies.”
  • CBS CEO Les Moonves resigned in September following allegations of sexual misconduct, while CBS and Moonves will donate $20 million “to one or more charitable organizations that support the #MeToo movement and equality for women in the workplace.”
  • Texas Instruments CEO Brian Crutcher resigned in July due to “violations of the company’s code of conduct.”
  • Barnes & Noble CEO Demos Parneros was terminated in July for “violations of the company’s policies.”
  • Rambus CEO Ron Black was terminated in June after his “conduct fell short of the company’s standards.”
  • Intel CEO Brian Krzanich resigned in June after a “violation of Intel’s non-fraternization policy” and after a “past consensual relationship with an Intel employee.”
  • Avid Technology CEO Louis Hernandez was terminated in February due to “violations of company policies related to workplace conduct.”
  • Wynn Resorts CEO Steve Wynn resigned in February because he found himself “the focus of an avalanche of negative publicity.”
  • Lululemon Athletica CEO Laurent Potdevin left in February because “Lululemon expects all employees to exemplify the highest levels of integrity and respect for one another, and Mr. Potdevin fell short of these standards of conduct.”
  • Equinix CEO Steve Smith resigned in January after exercising “poor judgment with respect to an employee matter.”
  • Farmer Mac CEO Tim Buzby was terminated in December “solely on the basis of violations of company policies unrelated to the company’s financial and business performance.”

Companies are, within certain limits, not necessarily required to reveal the reason for a CEO departure. However, if they consider it appropriate, they may give a reason for the move, for example to curb speculation.

The Securities and Exchange Commission requires that public companies must issue a securities filing called an 8-K within four business days if a major event relevant to shareholders occurs (see

While Item 5.02(b) of Form 8-K requires companies to disclose when a principal executive officer “retires, resigns or is terminated from that position,” companies only need to “disclose the fact that the event has occurred and the date of the event.”

When companies make statements, they must act responsibly, including endeavoring to ensure the statements are not false or misleading and do not omit information a reasonable investor would consider important in making an investment decision.

If the CEO is also a director, which a CEO often is, and departs in their capacity as a director because of a disagreement with the company “on any matter relating to the company’s operations, policies or practices,” or has been removed for cause from the board of directors, item 5.02(a) of Form 8-K requires the company to disclose “a brief description of the circumstances representing the disagreement that the registrant believes caused, in whole or in part, the director’s resignation, refusal to stand for re-election or removal.”

The SEC does not detail how specific that description must be.

While statements must not be misleading, companies sometimes give vague reasons for a CEO’s departure. This approach may be sensible because an investigation has not yet been completed, due to privacy concerns for the CEO, in order to prevent a defamation action by the departing CEO against the company, or to have more flexibility in case a CEO tries to litigate a “for cause” departure or the elimination of severance payments.

In the U.S., the average tenure of departing CEOs in the 12-month period from November 2017 to October 2018 was 9.1 years (see Exhibit 6).

The average CEO retirement age in the U.S. was 61 (see Exhibit 7).

In the past 12 months, the highest average Push-out Scores in the U.S. were determined in the technology sector with 6.6 and in the consumer sector with 6.3.

The lowest Push-out Scores were determined in the financial sector with 3.9 and the services sector with 4.8.

In the healthcare sector, the average Push-out Score was 6.1, in the basic materials sector it was 5.3, and in the industrial sector it was 5.3.

These results were calculated from 245 individual CEO departures of companies listed in the Russell 3000 index, which provide a homogenous and wide data pool for the analysis of CEO departures.

The Russell 3000 seeks to be a benchmark of the entire U.S. stock market and encompasses the 3,000 largest U.S.-traded stocks, in which the underlying companies are all incorporated in the U.S.

Corporate governance experts from Stanford University (David Larcker and Brian Tayan) and Harvard University (Ian Gow, now University of Melbourne) have investigated exechange’s analysis model and found that Push-out Scores are positively correlated with stock market volatility.


About exechange

exechange is an independent research provider widely recognized as an important voice on executive changes. exechange determines the Push-out Score and was featured by The Wall Street Journal, Harvard Business Review and Stanford University. For more information, visit

This report, including exhibits, is available at