CEO Succession in Bunches
An In-Depth Look at S&P 1500 Companies with Multiple CEO Turnovers between 2007 and 2010
By Annalisa Barrett
The need for succession planning has become an increasingly important and relevant topic for many companies.Knowing who will take over once a CEO leaves can provide investors and employees with stability and certainty about the future, despite changes in the top office.Equilar recently published the results of a study of CEO turnover among S&P 1500 companies between 2007 and 2009.In conjunction with this study, Equilar identified 48 companieswhich had more than one instance of CEO turnover from 2007 to 2010 (most are also included in the overallstudy).This article presents the findings of an in-depth look at companies with more than one change in CEO during this period.In this analysis, these companies are classified into two categories: those thatsaw multiple CEO changes during the four-year period studied due to short CEO tenure(s) (i.e., shorter than three years),and those with an interim CEO in place during the timeframe studied.A handful of companies fell into both categories, withone or more CEO changes due to short tenure and one or more people serving as interim CEO between 2007 and 2010.
The Interim CEO Approach
It is widely accepted that the board should have an extensive succession plan in place,allowinga successor to be named to the CEO position regardless of the circumstances led to the former CEO's departure.Recently, shareholders' calls for leadership succession plans to be disclosed have increased the need for boards to focus on this important issue.Although some believe that naming an interim CEO indicates the lack of an effective CEO succession plan, others argue that choosing an interim chief can be an effective approach, providing a firm with strong leadership as its board works to identify the best candidate to replace a departing leader. This situation, proponents agree, can be a lifeline in situations where the CEO's departure is unplanned or unexpected, as in cases of death or disability, scandal, or when the CEO is hired away by another company.
Equilar's study found that the most common circumstance leading to more than one CEO change taking place was the board's decision to name an interim CEO. In fact, nearly two-thirds (65 percent) of the companies in this studyhad an interim CEO at some point between 2007 and 2010.This analysis includes 32 interim CEOs from 31 companies (one company had two different interim CEOs during the timeframe studied).
Who Serves As Interim CEO?
Typically, the interim CEO is a top board member who steps in to assist the company through the leadership transition.For example, when the Chairman, CEO and President of Advance Auto Parts left in May 2007"to pursue other business opportunities," the board's lead director stepped in and became interim CEO while the board conducted a search for a permanent chief executive.Similarly, when Walgreens' CEO retired, the board's lead director took over as "Chairman and Acting CEO" while the board searched for a permanent replacement.
Occasionally, it takes more than one person to lead the company in an interim capacity. At Pinnacle Entertainment, the departing Chairman and CEO was replaced by two board members on an interim basis: "Richard J. Goeglein has been named interim nonexecutive chairman and John V. Giovenco has been named interim chief executive officer. Messrs. Goeglein and Giovenco, both board members, will oversee the company's operations while the board conducts an executive search for a new president and chief executive officer." 1
Even after a board chooses a permanent replacement, the executive might be under contract, precipitating the need for an interim CEO until the desired executive is free of obligations to another firm. When International Flavors & Fragrances' (IFF) Chairman and CEO left the company in September 2009, the person tapped to take over as Chairman and CEO – at the time a board member of IFF and the Chairman and CEO of another company – was still under contract with his current employer and could not assume the lead of IFF until that contract expired.So, he stepped into "the role of Non-Executive Chairman on October 1, 2009 and the positions of Chairman and CEO when his contract with his current employer expires no later than the end of first quarter 2010."While the company waited for its new leader to become available, the board established a "temporary Office of the CEO, which will be comprised of three current IFF executives" including the CFO, and two Group Presidents.2
At a few companies in Equilar's study, the interim CEO was a former CEO and current board member who briefly resumed his or her former position when temporary leadership was needed. At the Great Atlantic and Pacific Tea Company, the former CEO stepped in on an interim basis when the CEO left in October 2009.According to the company's press release: "The Company has commenced a search for a successor and in the interim, Christian Haub, Executive Chairman of the Board, will reassume the Chief Executive Officer responsibilities, a position he previously held from 1998 until 2005."3
How Long is the Interim CEO in Place?
One important factor in the success of the leadership transition is the length of time the interim CEO serves.Usually,boards intend to have the interim CEO serve for a short period of time, until a permanent CEO is selected. In some cases, however, the search process drags on, leaving the interim CEO in his or her role much longer than planned. The company with the longest-serving interim CEO in Equilar's study was GenCorp, which had the same interim CEO in place from March 2008 to January 2010.However, the company maintains that his appointment as CEO "was never intended to be permanent."4
The chart below shows that of the 32interim CEOs studied, most served in the interim role between 6 and 12 months.
The other category of companies with multiple CEO turnovers includes those companies which had CEOs with short tenures (i.e., less than three years) during the timeframe studied.Several of the companies with short-tenured CEOsmade news headlines due to scandals or major leadership shake-ups.AIG was, and continues to be, the subject of intense media coverage, due to its role in the financial crisis and subsequent bail-out by the U.S. government.AIG is one of the companies with the highest number of CEOs during the timeframe studied:since mid-2008, four different people have served as CEO of the company.
Other resignations may not have received the same level of notoriety, but nonetheless left companies facing an unplanned leadership change.At Arbitron, Michael Skarzynski became CEO as an external hire in January 2009 after the company's long-time Chairman, CEO and President stepped down from hisCEO and President roles.In January 2010, another of the company's directors took over as CEO when Mr. Skarzynski resigned after making misstatements in Congressional testimony.5
Scandal isn't always the cause of a departure: firms often find themselves facing multiple changes in the CEO's office for reasons that have nothing to do with misbehavior. Sometimes the demands of the CEO role are too much for an executive to handle, causing him or her to leave the position after a short tenure.For example, 3Com CEO Scott Murray left after only seven months on the job, "finding the amount of time required to be in China to support the company's key partnership with Huawei to be too much of a time commitment away from his family."6 In April 2010, 3Com was purchased by HP – another company with multiple CEO turnovers during the timeframe studied.
2 See the company's September 19, 2009 press release.
3 See the company's October 20, 2009 press release.
4 See "Neish Resigns from Aerojet, GenCorp."