Help Wanted: Industrial CEOs

Having been pushed to the brink during the pandemic, manufacturing CEOs are beginning to step down.

Over the last year, CEOs, like nearly every other type of corporate employee, have left their roles. Compared to their peers, however, the chiefs of the nation’s biggest industrial firms are literally running to the exits. 

Earlier this month, one of the nation’s biggest toolmakers announced its CEO would depart in July. This followed CEO changes announced at an airline, an electrical components manufacturer, and one of the country’s biggest shipping firms. Indeed, one-third of the companies in the S&P 500 Index have changed CEOs since just prior to the pandemic. 

While seemingly happening all at once, the changes have been a long time coming, experts say. “A lot of clients are going through transition,” says Jorge Gomar, a senior client partner in Korn Ferry’s Global Industrial Market practice. 

In 2020, many of the departing industrial CEOs were near to—or had passed—the traditional retirement age of 65. But boards often hesitated to make leadership changes during the pandemic. Manufacturers had many other issues to focus on, including keeping employees healthy, since most of them couldn’t work remotely, and rejiggering supply chains. A CEO switch seemed like a disruption many board directors didn’t want to provoke. 

Now, with the pandemic becoming more manageable in many parts of the world, CEOs and boards are resuming their transition plans. “There are instances of ‘I was ready, pre-COVID—and now, I’m still ready; it’s post-COVID, and I’m exhausted,’” says Dan Kaplan, a senior client partner at Korn Ferry who specializes in recruiting human resources executives. Since the beginning of the year, Kaplan says, the CEOs of four of his industrial clients have followed through on such plans.

The new CEOs are certainly coming in at a volatile time. Multinational industrial firms are still overhauling supply lines, as COVID-related outbreaks and the conflict in Eastern Europe force organizations to remain flexible. The Great Resignation has left many organizations short of critical talent. And the cost of many raw materials has skyrocketed, forcing new leaders to balance passing along higher costs with keeping customers happy. 

The changes are also having a dramatic impact on tenure. According to data compiled by Bloomberg, the average tenure of a CEO on the S&P 500 Industrial Index will drop to just under five years. That’s down from about five and half years at the end of 2019 and about six years as of mid-2017. The average CEO tenure on the broader S&P 500 Index is currently about seven years.

Many companies are looking internally for new top leaders. “The rule is you develop your succession from within, and you typically have two or three contenders,” Gomar says. When companies do hire internally, they’ve frequently chosen seasoned veterans. The average tenure of an industrial-company CEO appointed internally is 14 years, he says.

The biggest ask that incoming CEOs are making of their boards? Manage uncertainty. In the past, the best industrial CEOs were top-down managers. Now, Gomar says, new industrial CEOs are being asked to be more collaborative and think beyond short-term profit margins.