Vice Chair, Board & CEO Services, Global Leader, CEO Succession Practice
The Three-Year Itch
The so-called Great Resignation—a mass exodus of employees from jobs across industries—made headlines two years ago. But it turns out another constituency was quietly exiting their roles, too, and at a surprisingly early point in their careers: CEOs.
This trend started even before the pandemic, according to new research from Korn Ferry. The study, an analysis of 87,000 first-time and newly appointed CEOs since 2015, found that nearly a third had left their jobs by their third year. The study also found that 11 percent had left after the first year and 23 percent after the second. The so-called “three-year itch” has become a disturbing issue for firms that expect new leaders to be fully engaged with new initiatives by then.
“The three-year mark represents an inflection point in terms of a new CEO’s impact on organizational performance,” says Jane Stevenson, vice chair of the Board and CEO Services practice at Korn Ferry and global leader for the firm’s CEO Succession practice. “It begs the question: Are boards picking the right CEOs?”
The study comes amid more recent reports of a CEO exodus, with some retiring and others forced out. The Korn Ferry data highlights the timing of the departures, their impact, and the role played by weak corporate-succession plans.
Though it stands to reason that no CEO stays on forever, companies and their boards only rarely develop orderly succession plans, experts say. In most cases, new leaders are brought in to improve lagging performance, reshape organizational culture, refine operations and processes, and execute strategic pivots. The fact that three out of every 10 new CEOs departs by the third year, says Stevenson, suggests that “many organizations are falling short of accomplishing the strategy and vision of the new CEO.”
Numerous studies have shown that CEO tenure is correlated with financial performance and growth—the longer a CEO stays, the better the company performs over the long term. Yet the average tenure of CEOs of S&P 500 companies fell to 4.9 years at the end of 2022. Slowing growth, an increasingly precarious geopolitical environment, the rise of artificial intelligence, social volatility, and other factors are conspiring to push CEO departures to record or near-record highs.
In today’s business world, leadership stability is key, as more and more companies undertake strategic transformation in both operations and culture, says Evelyn Orr, head of Korn Ferry’s CEO and Executive Assessment practice for North America. “Appointing a new CEO isn’t about shaking things up,” she says. “It’s really about trust, authenticity, credibility, and stability.”
Boards, she says, need to do a better job of identifying successors with the right traits and drivers to perform the role for the long term. In its analysis of CEO longevity, Korn Ferry found that the use of leadership assessment for succession significantly increased longevity: Only 18 percent of candidates who were endorsed by Korn Ferry left within three years, versus 34 percent of those who weren't. In other words, the leadership-assessment process reduced CEO turnover by nearly 50 percent.
The Korn Ferry study identified several characteristics that are correlated with longer CEO tenure. For instance, leaders who scored highly on their ability to manage conflict, build networks, and balance stakeholder interests were 46 percent more likely to remain with their firms longer than three years. CEOs with low empathy scores were 94 percent more likely to leave their firms within three years than those with higher scores on that trait. Meanwhile, leaders with a strong independent streak were nearly 50 percent more likely to leave than those who were more collaborative.
“Choosing the next CEO is a high-stakes proposition,” says Orr. “A selection process aimed at reduced attrition, especially within the first three years, is critical to seeing strategic pivots through.”
For more information, contact Korn Ferry's Board and CEO Services practices.