You’re never too old to be fired

By David F. Larcker and Brian Tayan *

(exechange) — March 1, 2020 — Researchers who study the degree to which board members are willing to terminate an underperforming CEO benefit from Push-out Scores.

By replacing the standard binary approach (fired versus not fired) with a scale that measures pressure (scale of 0 to 10), practitioners gain new insight into how boards monitor performance.

Take, for instance, the relation between CEO tenure and the likelihood of termination.

Under the standard approach, we see high involuntary turnover rates in the first few years of a CEO’s tenure, but almost never see a long-tenured CEO get fired.

The assumption is that CEOs become too powerful — and boards too beholden over time — to be forced out.

Push-out Scores, however, challenge this conclusion.

Push-out Scores are negatively correlated with tenure: CEOs who serve less than two years have average scores around 8; long-tenured CEOs have much lower scores.

Still, average Push-out Scores do not go below the critical threshold of 5 until tenure reaches seven years.

Even CEOs who serve more than 10 years have an average Push-out Score close to 4.

This indicates that boards keep a sharp eye on performance even for seasoned executives.

Recent “resignations” underscore this point: Les Wexner of L Brands left the company after 57 years with a Push-out Score of 6.

Similarly, long-tenured CEOs such as Ginni Rommetty at IBM, Paal Kibsgaard at Schlumberger and Kevin Plank of Under Armour all left with Push-out Scores at or above 5.

Apparently, CEOs are never too old, or too long tenured, to be fired.

* The authors are a professor and researcher at the Rock Center for Corporate Governance, Stanford University.

Editor’s note: This is a guest post.