Every third CEO steps down under pressure

  • Ambivalent move: HPE CEO Meg Whitman leaves
  • Almost perfect exit: Lear chief executive Matt Simoncini retires
  • Bumpy departure: Madison Square Garden boss Doc O’Connor resigns
  • In-depth analysis of more than 200 CEO departures in the U.S. from the past 12 months

(exechange) — December 1, 2017 — Hewlett Packard Enterprise Company, Lear Corporation and The Madison Square Garden Company are among the companies that announced a major leadership change in November 2017. Obviously, not all of the top managers leave the position on their own initiative.

Every management change is different. The departure of Hewlett Packard Enterprise CEO Meg Whitman seems ambivalent, the retirement of Lear chief executive Matt Simoncini is almost perfect, and the resignation of Madison Square Garden boss Doc O’Connor appears bumpy.

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. (see Exhibit 1).

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 management change, and a score of 10 indicates an overtly forced departure.

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 corporate communications, using a proprietary algorithm (see Exhibit 2). The method can be used for management changes in all listed companies in the world.

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 Exhibit 3). Every third CEO in the U.S. steps down under pressure.

With a Push-out Score of 5, the CEO change at Hewlett Packard Enterprise Company seems ambiguous.

As announced on November 21, Margaret C. (Meg) Whitman, age 61, leaves her post as Chief Executive Officer at the information technology company after about six and a half years in the position, effective February 1, 2018. Whitman’s duties will be taken over by Antonio Neri, President of Hewlett Packard Enterprise Company since June 2017. Whitman will remain on the HPE Board of Directors. So far there are no red flags visible.

The reason given for the management change is not completely comprehensible. That’s the first point for the Push-out Score.

Whitman’s departure from the CEO post is explained as follows. She said: “Now is the right time for Antonio and a new generation of leaders to take the reins of HPE.”

Now is the right time? Whitman’s departure comes after she was considered for, but ultimately did not accept, a job as the CEO of Uber. According to CNBC, Whitman had said in September 2017 during a conference call: “I have no plans to leave HPE. … It’s hard to imagine another five [years] but listen, I am here for the foreseeable future, because there’s still work to do.”

Precise information about Whitman’s future plans was not immediately available.

Whitman steps aside at a critical time. That’s point number 2. The announcement came as HPE gave a forecast for earnings in the fiscal first quarter that missed analysts’ estimates.

The change follows a stagnation in the share price of Hewlett Packard Enterprise Company since December 2016. That’s point number 3. Her successor, Neri, said that “we remain focused on … delivering the next wave of shareholder value.”

The form and language of the announcement provide further warning signals and two additional points: Pat Russo, Chairman of HPE’s Board of Directors, said only 20 words about the long-standing chief executive Meg Whitman: “During the past six years, Meg has worked tirelessly to bring stability, strength and resiliency back to an iconic company.”

Meg has worked tirelessly: The phrase can be seen as poisoned praise. Russo does not say whether Whitman was successful with her tireless work. It can be assumed that Russo has chosen her words carefully.

In the announcement, Hewlett Packard Enterprise lauds Whitman for her achievements, but the departing chief executive gets no explicit word of thanks, no word of regret and no good wishes. Whitman points to accomplishments during her tenure: “I’m incredibly proud of all we’ve accomplished since I joined HP in 2011.”

The terms of Whitman’s departure were not immediately disclosed. HPE did not respond to an email message seeking comment.

With a Push-out Score of 1, the CEO change at Lear Corporation is almost perfect.

As announced on November 16, Matthew J. (Matt) Simoncini leaves his post as Chief Executive Officer at the supplier of automotive seating and electrical systems after about six and a half years in the position, effective February 28, 2018. The lead time is 104 days.

He will hand over the baton to Ray Scott, currently Executive Vice President and President of Seating at Lear Corporation, and the Board “looks forward to a very smooth CEO transition, and to continued operational and financial success under Ray’s leadership.”

Simoncini’s departure from the CEO post is explained as follows. Matt Simoncini said: “Given Ray’s extensive leadership experience and the overall strength of the Lear management team, now is the perfect time to implement our succession plan.”

Now is the perfect time? This sounds plausible because the management change is exactly what investors love to see. The share is now trading at a record high and profits are booming.

On October 25, 2017, Lear Corporation had reported record results for the third quarter 2017.

The icing on the cake with Simoncini’s resignation is the form and language of the announcement. The outgoing CEO does not praise himself, but his successor, whom he attests to have “extensive leadership experience.”

In the announcement from Southfield, Michigan-based Lear, Matt Simoncini receives accolades, praise and thanks. Henry D. G. Wallace, non-executive chairman, said: “Thanks to Matt’s exceptional leadership, the Company has achieved industry-leading financial results and the best total shareholder returns among its peers.”

The Push-out Score is 1 because Simoncini’s age of 56 is below normal retirement age. Precise information about his future plans was not immediately available.

With a Push-out Score of 7, the CEO change at The Madison Square Garden Company is in the upper range of the scale and seems pretty bumpy.

As announced on November 13, David (Doc) O’Connor leaves his post as Chief Executive Officer at the sports and entertainment holding company. A variety of factors indicates that the manager was under strong pressure.

Among the red flags are the abrupt departure (effective immediately), the short tenure as CEO (less than two and a half years) and the fact that a permanent successor is still to be found while Executive Chairman Jim Dolan 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. That’s point number 4.

O’Connor steps aside at a critical time. That’s point number 5.

On November 14, The Madison Square Garden Company announced that it intends to sell its original WNBA franchise, the New York Liberty. “MSG is committed to identifying new ownership that will continue to grow the team, and is actively seeking a buyer to take over immediate operations of the franchise,” the Company said.

The form and language of the announcement provide further warning signals and two additional points.

Taking as a basis the announcement from New York-based Madison Square Garden, O’Connor’s move is a departure without pomp and ceremony. In the brief announcement which consists only of two sentences, the departing chief executive gets no accolades for concrete successes, no praise, no explicit word of thanks, no word of regret and no good wishes.

In the brief announcement from Madison Square Garden, Doc O’Connor does not get a chance to speak.

Conclusion: Short notice period, short tenure, succession problems, non-transparent reason, critical time, formal anomalies and linguistic peculiarities are seven red flags. Only O’Connor’s age of 59 years, the strong share price performance and the fact that he was not openly pushed out prevented a greater increase in the score.

In the U.S., the average Push-out Score for CEO departures in the period December 2016 to November 2017 was 4.4. The average tenure of departing CEOs in the U.S. was 8.8 years (see Exhibit 4). The average CEO retirement age in the U.S. was 62 (see Exhibit 5).

These results were calculated from 237 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.

In the past 12 months, the Healthcare sector showed the highest average Push-out Scores in the U.S. with 5.9. The lowest Push-out Scores were determined in the Industrial Goods sector with 2.4 and the Financial sector with 2.7.

In the Basic Materials sector, the average Push-out Score was 4.1, in the Consumer Goods sector it was 4.1, in the Services sector it was 5.2, and in the Technology sector it was 4.9.

Exhibit 1

CEO departures December 2016 to November 2017 (selection)
Announced Company Name Push-out Score Sector
21-Nov-17 Hewlett Packard Enterprise Company Margaret C. Whitman 5 Technology
16-Nov-17 Lear Corporation Matthew J. Simoncini 1 Consumer Goods
7-Nov-17 State Street Corporation Joseph L. Hooley 3 Financial
6-Nov-17 Cardinal Health, Inc. George S. Barrett 6 Services
6-Nov-17 Anthem, Inc. Joseph R. Swedish 6 Healthcare
18-Oct-17 American Express Company Kenneth I. Chenault 0 Financial
17-Oct-17 Northern Trust Corporation Frederick H. Waddell 0 Financial
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
30-Aug-17 Expedia, Inc. Dara Khosrowshahi 0 Services
16-Aug-17 UnitedHealth Group Incorporated Stephen J. Hemsley 0 Healthcare
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 Gerald L. Hassell 2 Financial
11-Jul-17 Zimmer Biomet Holdings, Inc. David C. Dvorak 6 Healthcare
10-Jul-17 Citrix Systems, Inc. Kirill Tatarinov 9 Technology
20-Jun-17 Whirlpool Corporation Jeff M. Fettig 1 Consumer Goods
12-Jun-17 General Electric Company Jeffrey R. Immelt 4 Industrial Goods
5-Jun-17 Perrigo Company plc John T. Hendrickson 7 Healthcare
1-Jun-17 CenturyLink, Inc. Glen F. Post 2 Technology
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
20-Mar-17 Comcast Cable Communications Neil Smit 0 Services
9-Mar-17 American International Group Peter D. Hancock 10 Financial
27-Feb-17 ServiceNow, Inc. Frank Slootman 4 Technology
21-Feb-17 CSX Corporation Michael J. Ward 4 Services
7-Feb-17 Autodesk, Inc. Carl Bass 6 Technology
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
Source: exechange


Exhibit 2

Push-out Score: Factors considered (selection)
Dimension Examples of factors considered
Form Dedicated press release (yes or no)
Placement (top of release or buried in other news, such as earnings release)
Length of disclosure (e.g., excessively short or long, omissions)
Language Tone of announcement (warm, neutral, cold)
Language used in quotations (e.g., poisoned praise, hidden criticism)
Clarity of language
Age Age of departing executive relative to typical retirement age
Notice period Length of time between announcement and last day
Tenure Length of time with company (reasonable or excessively short)
Share price Recent share price performance
Significant positive or negative relative performance
Official reason Official reason given (yes or no)
Clarity of official reason (ambiguous or understandable)
Stated post-employment activity (e.g., retire, health, taking new job)
Circumstances Industry performance
Peer group performance
Governance factors (controversy, restatements, lawsuits)
Severance payments made (yes or no)
Succession Signs of continuity
Successor identified (yes or no)
Internal vs. external successor
Interim or permanent replacement
Successor added to corporate website (yes or no)
Source: exechange


Exhibit 3


Exhibit 4


Exhibit 5