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New Study Shows How And Why Covid Has Impacted CEO Turnovers

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The Covid pandemic had an important impact on when and how often CEOs left many major companies last year according to a new report this week from The Conference Board that underscores the value of succession plans in crisis and other emergency situations.

The report found that:

  • During the first half of 2020, as companies sought to steady the ship during the outset of Covid, only 71 companies in the Russell 3000 announced CEO successions. The rate was 11% lower than the average turnover level recorded in prior years.
  • In the second half of 2020, CEO succession activity picked up significantly. Because of the marked increase, in 2020 the average rate of CEO succession ended clocking in at 11.6%. The 11.6% rate is relatively on par with that of prior years.

The report was produced in collaboration with global leadership advisory firm Heidrick & Struggles and ESG analytics firm ESGAUGE. The study reviewed CEO succession announcements that were made at Russell 3000 and S&P 500 companies in 2020 and, for the S&P 500, the previous 19 years.

Avoiding Additional Risks During Covid

“When Covid-19 unexpectedly upended day-to-day life in the U.S. starting in mid-March,2020, it was not surprising that companies chose to leave the same generals on the battlefield rather than compounding new, unexpected business risks with the uncertainties of a leadership turnover,” according to Jason Schloetzer, a co-author of the report and an associate professor of business administration at Georgetown University's McDonough School of Business.  

“However, the rebalancing that took place in the second half of the year suggests that, after the initial assessment of the implications of lockdowns and other measures, most companies concluded that their succession planning process was strong enough to weather the volatile environment,” he said.

Surprisingly Quick Rebound

Matteo Tonello, a co-author of the report and managing director of ESG Research at The Conference Board, said “...what surprised me is how quickly the succession rate normalized, if you consider that the second half of 2020 was just as full of uncertainty as the previous months (no approved vaccines yet; no clear vaccination timetable in place; the number of infections that in fact rose again sharply after the summer).

“I think that the decision made by many companies to stick to their CEO succession plans despite the ongoing Covid crisis is an indication of the confidence boards have in their succession plans. It is a testament to how much better CEO succession planning has become in the last decade, as boards have improved their risk oversight and acknowledged what a critical business risk a CEO succession event is,” he said.

The Importance Of Succession Plans

Tonello observed that the pandemic, “was a seismic event that prompted many companies, especially in hard-hit industries, to reconsider their own strategic priorities.”

“[Like] any crisis, the pandemic has underscored to boards the importance of emergency succession. Companies don't just need a succession plan, they need a backup or emergency succession plan for those situations where the regular plan cannot be executed due to unforeseen changes in circumstances,” he counseled.

Tonello said that in times of crisis, “... we [recommend] that boards continuously revisit the job description of the CEO and other key functions in light of the most pressing organizational needs.” But he cautioned these “...may differ not only from those mapped in regular circumstances but also from those the board had anticipated only a few months before, at an earlier stage of the crisis. CEO succession is not a one-time task, it is an ongoing risk management exercise.”

‘Transition To Greater Accountability’

Lyndon Taylor, managing partner of Heidrick & Struggles’ diversity, equity and inclusion practice and regional managing partner of its North American CEO and board of directors practice. He observed that, “2020 ushered in a marked transition to greater accountability for CEOs—beyond shareholder returns—and this slowly developing trend was accelerated significantly by the pandemic.

“The gap between CEO succession rates of better-performing and worse-performing companies in terms of industry-adjusted total shareholder return narrowed sharply in 2020. In the S&P 500, the gap shrank from 8.9% in 2019 to only 2.2% in 2020—the largest recorded narrowing in nearly two decades.”

Finding Their New CEOs

Taylor said, “Last year, we saw growing calls for CEOs to exhibit agility, accountability and leadership in important areas that impact the long-term success of organizations, such as developing diverse and inclusive workplaces and sustainability and climate change strategies, while also supporting employees’ security and wellbeing.

“Now more than ever, we believe boards will be focused on finding and developing the CEOs of the future that can deliver on these critical areas, as well as financial performance, as they review their long-term CEO succession plans,” he said.

Advice For Boards Of Directors

Taylor of Heidrick & Struggles had the following advice for corporate boards of directors.

Have Potential Successors In The Wings

“As the economy and companies have shifted from recovery to growth, the pace of CEO turnover has picked up. Boards should be fully prepared with a diverse bench of potential successors and ready to respond to CEO and executive moves.”

Be Prepared

“Amid an increasingly competitive market for top talent, we are seeing companies deploy leadership development programs that ensure their organizations are preparing a range of leaders as potential CEO-ready successors.”

Rethink

“As companies look beyond the pandemic and to their future growth strategies, we advise boards to rethink their approach to CEO succession planning, ensuring they have robust succession plans in place for permanent and interim CEOs, and executives who can cover all types of scenarios, with potential internal and external CEO candidate pools that include diverse talent.

Become More Transparent

“We believe that boards must become more transparent about their diversity statistics in order to meet increasing stakeholder demands. In addition, boards must widen not only their criteria for CEO success but also the networks they use to find potential CEOs and the range of people they choose for leadership development programs.”

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