Push-out Score: Hard end of the year for CEOs

  • CEO Push-out Index climbs to 8.3 in December from 7 in November
  • In-depth analysis of 250 CEO departures in the U.S. from the past 12 months

(exechange) — January 2, 2019 — Bunge Ltd., Akorn Inc. and Gannett Co. are among the U.S. companies that announced a major leadership change in December 2018.

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

Research using the Push-out Score analysis model shows that the pressure on CEOs continues to rise, reaching a 12-month high in the first winter month.

Every management change is different. The move of Bunge CEO Soren Schroder seems unceremonious, the exit of Akorn CEO Raj Rai appears lackluster, and the departure of Gannett CEO Bob Dickey looks double-edged.

A more detailed insight is provided by research firm exechange, which has analyzed more than 200 CEO departures of publicly traded companies in the U.S. from the past 12 months (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 mean that the red flags cannot be counted on the fingers of one hand, suggesting 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 Push-out Score indicates how many of the following nine criteria are met: unusual age, short notice, short tenure, poor share price performance, non-transparent reason, challenging circumstances, 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.

CEO Push-out Index climbs to 8.3

The CEO Push-out Index™, which reflects the average Push-out Score for CEO departures in the U.S., rose to 8.3 in December 2018 from 7 in November 2018 (see Exhibit 3). The index reached its highest level in 12 months. The index surged for the third consecutive month.

For the third month in a row it was above the critical value of 5.

In December, the index was influenced by many obviously forced turnover events and leadership changes with high Push-out Scores, including the announced CEO departures at Lam Research Corp., Bunge Ltd., Acadia Healthcare Co., QEP Resources Inc. and Medicines Co. In November, the index had also been dominated by a flood of bumpy management changes.

The average Push-out Score for CEO departures in the 12-month period from January 2018 to December 2018 was 6.

Around 55 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).

More than one in two CEOs stepped down under pressure.

In-depth analysis of 250 CEO departures

In the period from January 1, 2018 to December 31, 2018, around 33.6 percent of the CEOs in the U.S. left their post with no reason given in the announcement.

Around 7.6 percent departed “to pursue other opportunities” and around 2 percent “to spend time with their family,” statements that are sometimes taken as code for firings.

Around 2.4 percent left for “personal reasons,” and around 5.2 percent have been ousted with a specific reference to misconduct (see Exhibit 5).

CEOs who departed “to pursue other opportunities” received an average score of 7.7. CEOs who left “to spend time with their family” received an average score of 7.6, and CEOs who stepped down for “personal reasons” received an average score of 7.8.

Companies are, within certain limits, not necessarily required to reveal the reason for a CEO departure (see Exhibit 6). However, if they consider it appropriate, they may give a reason for the move, for example to curb speculation.

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

  • Kemet CEO Per Loof resigned in December 2018 following “an investigation overseen by certain independent members of the Kemet board, with the assistance of an external law firm, of the facts and circumstances surrounding a consensual personal relationship between Mr. Loof and an employee of the company and related actions which were inconsistent with the company’s policies.”
  • Lam Research CEO Martin Anstice resigned in December 2018 “as the company investigates allegations of misconduct in the workplace and conduct inconsistent with the company’s core values, including allegations about Mr. Anstice.”
  • Abeona Therapeutics CEO Carsten Thiel was terminated in November 2018 “due to personal misconduct that violated the company’s code of business conduct and ethics.”
  • Axalta Coating Systems CEO Terrence Hahn resigned in October 2018 “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 2018 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 2018 due to “violations of the company’s code of conduct.”
  • Barnes & Noble CEO Demos Parneros was terminated in July 2018 for “violations of the company’s policies.”
  • Rambus CEO Ron Black was terminated in June 2018 after his “conduct fell short of the company’s standards.”
  • Intel CEO Brian Krzanich resigned in June 2018 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 2018 due to “violations of company policies related to workplace conduct.”
  • Wynn Resorts CEO Steve Wynn resigned in February 2018 because he found himself “the focus of an avalanche of negative publicity” after the “Wall Street Journal” reported in January 2018 that Wynn had engaged in a pattern of sexual misconduct.
  • Lululemon Athletica CEO Laurent Potdevin left in February 2018 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 2018 after exercising “poor judgment with respect to an employee matter.”

In 2017, exechange recorded only one comparable case.

In the U.S., the average tenure of departing CEOs in the 12-month period from January 2018 to December 2018 was 8.8 years (see Exhibit 7).

The average CEO retirement age in the U.S. was 60.7 (see Exhibit 8).

In the past 12 months, the highest average Push-out Scores in the U.S. were determined in the consumer sector with 7 and in the technology sector with 7.

The lowest Push-out Scores were determined in the financial sector with 4.2 and the services sector with 4.8.

In the healthcare sector, the average Push-out Score was 6.6, in the basic materials sector it was 5.5, and in the industrial sector it was 5.3.

These results were calculated from 250 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.

The exechange study monthly documents and analyzes CEO departure events of Russell 3000 companies, updating a database first introduced in 2017.

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. See https://ssrn.com/abstract=2975805

This report, including exhibits, is available at https://exechange.com/research-news

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 exechange.com.