Friday, July 4, 2008

Executive Turnover related to CEO change

By: Coyne, Kevin P., Coyne, Sr., Edward J.,
Harvard Business Review,
May 2007, Vol. 85, Issue 5

First, the authors looked at companies where the CEO remained constant. Proxy-level senior management turnover under those circumstances had a weighted average of 16% annually. Roughly half (about 8. 5%) was voluntary, consisting of people who retired or who faced health or family issues, and that rate appeared to be unaffected by the company's performance. More important is the rate of involuntary turnover, including firings and unplanned early retirements. This averaged about 7. 5% overall, with slight differences depending on how well the company was performing.

Next, we looked at the turnover rates for companies in which an internal executive had moved up the corporate ladder to the top spot. In such cases, the news was generally bad: The rate of involuntary turnover jumped up to 12.5% --an increase of about 65%. When we included voluntary turnover as well, the chances of a senior executive's leaving grew to more than one in five.

Then we considered cases in which the new CEO came from outside the company, which generally happens only in mid-performing and low-performing firms (high-performing companies almost never replace their CEOs with outsiders). Here, the story gets much worse: Involuntary turnover averaged a whopping 26%-- almost four times the rate when the CEO did not change. A further breakdown revealed that the involuntary turnover rate at companies with average performance was 24%, while the rate at poorly performing companies was 31%. Thus, overall, if you are listed in the proxy statement and your company brings in an outside CEO after a year of sub-par performance, you have about a two in five chance of leaving your job.

How to Survive

Show your goodwill
Study the CEO's working style
Understand the CEO's agenda
Present a realistic and honest game plan

Kevin P. Coyne ( teaches strategy at Harvard Business School in Boston and serves as a senior external adviser to McKinsey & Company. Edward J. Coyne, Sr., ( is an assistant professor at Samford University's School of Business in Birmingham, Alabama.

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