Every third CEO steps down under pressure

  • Analysis of more than 200 CEO departures in the U.S. from the past 12 months
  • Average tenure of departing CEOs is 9.0 years
  • Average CEO retirement age is 62
  • Strong pressure in Healthcare sector
  • Average Push-out Score is 4.3

(exechange) — October 30, 2017 — Hudson’s Bay Company, American Express Company, Deutsche Börse AG and London Stock Exchange Group plc are among the companies that announced a major leadership change in October 2017.

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

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.

exechange uses a scoring system with a scale of 0 to 10 to determine the likelihood of a forced executive change.

A Push-out Score of 0 indicates a completely voluntary change, and a score of 10 indicates an overtly forced departure.

Around 36 percent of the Push-out Scores of CEO departures in the U.S. from the past 12 months reached values between 6 and 10, which suggest strong pressure on the outgoing CEO (see Chart 1). Every third CEO in the U.S. steps down under pressure.

The Push-out Score incorporates facts from company announcements and other publicly available data, including the age of the outgoing manager, time in office and share price performance. The system also interprets the sometimes-cryptic language in CEO departure announcements, using a proprietary algorithm.

The method can be used for management changes in all listed companies in the world.

With a Push-out Score of 8, the CEO change at Hudson’s Bay Company is in the upper range of the scale. Gerald L. (Jerry) Storch is vacating the position, and a variety of factors indicates that he was under extreme pressure to leave the Canadian retail business group.

Among the red flags are his short tenure as CEO (2 years and 9 months), the weak share price performance since June 2015 and the fact that a permanent successor is still to be found while Executive Chairman Richard Baker steps in as interim CEO. That makes the first three points on the scale.

In addition, a reason for the surprising change was not explicitly given. Storch steps aside at a critical time. In its most recent quarter, Hudson’s Bay said its sales grew by 1.2 percent to $3.3 billion, but its loss for the quarter came in at $201 million, up from $142 million in the same period of last year. Hudson’s Bay said in June that it was cutting 2,000 jobs amid a reorganization. And Hudson’s Bay has been under pressure recently from a minority shareholder, activist hedge fund Land and Buildings. That makes two more points.

The form and language of the announcement provide further warning signals and two additional points: Executive Chairman and Interim CEO Richard Baker says: “We thank Jerry and wish him the best”, but words of regret about his resignation are not included in the announcement. Meanwhile, the company announces that it “has retained an executive search firm to recruit a CEO to further enhance HBC’s strategies and take the Company to its next phase of development and growth”, which can be perceived as a slap in the face for Storch. Storch himself says: “I look forward to returning to my consulting firm.”

What is particularly bizarre is that in the announcement dated October 20, Hudson’s Bay states that Storch “has stepped down as Chief Executive Officer, effective November 1, to return to his advisory firm, Storch Advisors”. Apparently, however, it was an abrupt departure: On October 20, Hudson’s Bay had already removed the name of Storch from the leadership page and listed Baker as Interim CEO. Hudson’s Bay did not respond to an email message seeking comment. Storch’s departure was announced after the Toronto Stock Exchange closed Friday.

The abrupt departure adds one more point, and the total Push-out Score is 8. Only Storch’s age of 60 years and the fact that he was not openly fired kept the score from climbing higher.

The resignation of Kenneth I. (Ken) Chenault, CEO of American Express Company, is completely different. His Push-out Score: 0.

On October 18, the 66-year-old announced his retirement, effective February 1, 2018, with a lead time of 106 days, after about 17 years in the position. He will hand over the baton to 58-year-old Stephen J. (Steve) Squeri.

His successor, who has been Vice Chairman of American Express Company since July 2015, emerged from “a very thorough succession process underway for five-plus years”.

The management change is exactly what investors love to see. The share is now trading at a record high and profits are booming. In addition, the announcement of Chenault’s move is accompanied by good news. American Express also reported a third-quarter profit of $1.4 billion on sales of $8.4 billion, both ahead of market expectations.

The icing on the cake with Chenault’s resignation “after a distinguished 37-year career” is the form and language of the announcement. The outgoing CEO does not praise himself, but his successor, whom he attests to be an “excellent strategist” and a “strong leader”. After that, Ken Chenault accepts the accolade from major shareholder Warren Buffett himself. The investor legend says about him: “Ken’s been the gold standard for corporate leadership and the benchmark that I measure others against.” A chief executive can hardly step down more gloriously.

The case of Carsten Kengeter, CEO of Deutsche Börse AG, is also clear.

Kengeter “informed the Supervisory Board of Deutsche Börse AG … that he would like to step down” amid growing shareholder pressure after he became embroiled in an insider-trading probe. Kengeter says: “With this decision, I am paving the way for a new beginning for Deutsche Börse.”

For the assessment of this case, it is irrelevant whether he was forced to leave or saw himself forced to leave. The circumstances clearly indicate that his departure was overtly forced. Kengeter’s Push-out Score is 10.

Meanwhile, the CEO change at the London Stock Exchange Group plc seems ambiguous. Xavier Rolet’s Push-out Score is 5.

At 57 years of age, Rolet is far from the normal retirement age, a reason for his departure is not explicitly given, and a successor has yet to be sought. That’s three points for the Push-out Score.

Rolet is to vacate his place, which he held for more than eight years, “by the end of December 2018”. The long lead time of up to 14 months makes Rolet a “lame duck”, and lame-duck leaders are not expected to launch major strategic shifts.

The circumstances of the announced change are also ambiguous. Rolet would have retired this year if all had gone to plan with the merger with Deutsche Börse AG. That deal, however, was blocked in March by European Union regulators on the grounds that it would create a monopoly in some markets. After the deal collapsed, investors urged Rolet to stay. That’s point number 4.

The fifth point in the Push-out Score of 5 is due to the language in the announcement. The company acknowledges the outgoing boss’s “extraordinary success” and is looking for a successor who will work closely with Rolet “as the Group continues to execute on its successful growth strategy”. The company also highlights that under Rolet’s leadership, the Group’s market capitalization increased from £800 million to almost £14 billion.

However, the 158 words of Rolet’s statement can be read with a little bit of astonishment. After the failed deal with Deutsche Börse, he pats himself on the back and is “extremely proud” of what was achieved under his leadership. He also emphasizes that “we have shown the hugely positive contribution capitalism can make to all of society”. Rolet also says that establishing relevance and leadership in a consolidating global industry “cannot be achieved without taking certain risks and making bold moves”. This can be seen as a justification for a risky strategy supported by the Board and shareholders, the long-term success of which others have to judge.

With a Push-out Score of 5, Rolet is slightly above the average score calculated by exechange, based on data from the world’s largest capital market for the past 12 months.

In the U.S., the average Push-out Score for CEO departures in the period November 2016 to October 2017 was 4.3. The average tenure of departing CEOs in the U.S. was 9.0 years (for more details, see Chart 2). The average CEO retirement age in the U.S. was 62 (for more details, see Chart 3).

These results were calculated from 235 individual CEO turnover events 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.

In the past 12 months, the Healthcare sector showed the highest average Push-out Scores in the U.S. with 5.7. The lowest Push-out Scores were determined in the Financial sector (2.7) and Industrial Goods sector (2.7). In the Basic Materials sector, the average Push-out Score was 4.0; in the Consumer Goods sector it was 4.2; in the Services sector it was 5.1, and in the Technology sector it was also 5.1.

CEO turnover events November 2016 to October 2017 (selection)
Announced Company Departing CEO name Push-out Score Sector
26-Oct-17 Deutsche Börse AG Carsten Kengeter 10 Financial
20-Oct-17 Koninklijke KPN N.V. Eelco Blok 4 Technology
19-Oct-17 London Stock Exchange Group plc Xavier Rolet 5 Financial
18-Oct-17 American Express Company Kenneth I. Chenault 0 Financial
17-Oct-17 Northern Trust Corporation Frederick H. Waddell 0 Financial
9-Oct-17 Smith & Nephew plc Olivier Bohuon 6 Healthcare
2-Oct-17 Dentsply Sirona Inc. Jeffrey T. Slovin 10 Healthcare
28-Sep-17 Chevron Corporation John S. Watson 3 Basic Materials
28-Sep-17 Kellogg Company John A. Bryant 8 Consumer Goods
26-Sep-17 Equifax Inc. Richard F. Smith 8 Financial
18-Sep-17 Dollar Tree, Inc. Bob Sasser 1 Services
13-Sep-17 Skanska AB Johan Karlström 2 Industrial Goods
4-Sep-17 Novartis AG Joseph Jimenez 5 Healthcare
18-Aug-17 Infosys Limited Vishal Sikka 10 Technology
2-Aug-17 Mondelez International, Inc. Irene B. Rosenfeld 2 Consumer Goods
19-Jul-17 L3 Technologies, Inc. Michael T. Strianese 0 Industrial Goods
17-Jul-17 Sysco Corporation William J. DeLaney 0 Services
17-Jul-17 The Bank of New York Mellon Corporation Gerald L. Hassell 2 Financial
20-Jun-17 Whirlpool Corporation Jeff M. Fettig 1 Consumer Goods
12-Jun-17 General Electric Company Jeffrey R. Immelt 4 Industrial Goods
9-Jun-17 Carrefour SA Georges Plassat 5 Services
5-Jun-17 Perrigo Company plc John T. Hendrickson 7 Healthcare
22-May-17 Ford Motor Company Mark Fields 9 Consumer Goods
17-May-17 Halliburton Company David J. Lesar 3 Basic Materials
3-May-17 General Mills, Inc. Kendall J. Powell 5 Consumer Goods
17-Apr-17 Arconic Inc. Klaus Kleinfeld 10 Industrial Goods
7-Apr-17 Bank of Montreal William A. Downe 0 Financial
20-Mar-17 Comcast Cable Communications Neil Smit 0 Services
9-Mar-17 American International Group Peter D. Hancock 10 Financial
21-Feb-17 CSX Corporation Michael J. Ward 4 Services
6-Feb-17 Teva Pharmaceutical Industries Ltd. Erez Vigodman 9 Healthcare
2-Feb-17 Micron Technology, Inc. Mark Durcan 3 Technology
17-Jan-17 U.S. Bancorp Richard Davis 1 Financial
17-Jan-17 Mattel, Inc. Christopher A. Sinclair 0 Consumer Goods
14-Dec-16 Exxon Mobil Corporation Rex W. Tillerson 0 Basic Materials
12-Dec-16 Alexion Pharmaceuticals, Inc. David L. Hallal 9 Healthcare
9-Dec-16 The Coca-Cola Company Muhtar Kent 2 Consumer Goods
21-Nov-16 Tyson Foods, Inc. Donnie Smith 6 Consumer Goods
14-Nov-16 Nasdaq, Inc. Robert Greifeld 2 Financial