The Free Pass for CEOs is Over

CEO turnover is at its highest level since 2019, as stakeholders take a less forgiving stance towards underperformance now than they did during the pandemic. 

CEOs, not unlike many of their employees, are leaving their jobs at a level not seen since 2019. The only difference is that many of them aren’t leaving voluntarily. 

Based on a recent survey, the two-year free pass CEOs received from their boards, investors, and other stakeholders to navigate the pandemic is over. With soaring inflation, a depressed economy, and plummeting share prices, experts say CEOs are getting less leeway for subpar performance. Through July, CEO turnover is up 8% over 2021, with 832 leaders leaving this year against 770 through July of last year. Those 832 CEO departures mark the highest January-July total since 2019. Moreover, nearly 48% of that turnover comprised CEOs removed from their positions, as opposed to those who retired, stepped down for other roles within the same company, or left for a new position. 

During the pandemic, companies lost billions and many stock prices sank, but investor groups felt they couldn’t blame the corner office for a once-in-a-generation occurrence. Such empathy, experts say, runs out during economic downturns. “Companies and boards were reluctant to make changes during the pandemic, but not anymore,” says Tanya van Biesen, a senior client partner in the Global Board and CEO Services practice at Korn Ferry. Adding to the pressure: a sharp increase this year in activist campaigns that scrutinize leadership. “CEOs are worried,” says Joe Griesedieck, vice chairman and managing director for board and CEO services at Korn Ferry,

Nowhere has the free pass for CEOs during the pandemic ended more abruptly than in the healthcare industry. All told, 174 CEOs have departed from healthcare, hospital, and pharmaceutical companies this year, a 17% increase over the same period in 2021, and the most for any private industry. The changing dynamics of the healthcare industry, particularly from a financial and patient-experience perspective, are among the top reasons driving leadership change, says Greg Button, president of the Global Healthcare Services practice at Korn Ferry. For instance, elective procedures, hospitals’ main source of revenue, have still not recovered from the drop-off during the pandemic. At the same time, costs are rising because hospitals have had to increase wages to compensate for the high number of departing physicians and nurses. 

“Strategically, the industry needs a different type of leader,” says Button. He says the command-and-control style of leadership that was the model for healthcare for years is giving way to a new skill set defined by collaboration and purpose. “Leaders have to demonstrate purpose and make healthcare a destination while also improving business operations and clinical care,” says Button. 

CEOs aren’t the only ones feeling the pressure. Board directors are facing as much scrutiny from investors and other stakeholders as they are from company management, and experts surmise that some of the increase in CEO turnover is driven by turnover at the board level. That’s what’s happening in healthcare, says Button. “The traditional health system board is changing,” he says, “and when directors change, they start to compare their skill sets to those of the traditional CEO.”

But even incumbent boards may be thinking that now could be the time to make a leadership change, says van Biesen. Boards may be compelled to make a move for various reasons, she says: companies that emerged stronger from the pandemic have an opportunity to acquire assets, while companies that need to transition business models can take action to better position themselves for the next crisis. “Boards now have a moment to reflect and see if they have the right person for the next leg of the journey,” says van Biesen. 

One positive amid the higher CEO turnover has been a dramatic increase in women moving into the top spot. Through July, female leaders replaced males as CEO in 127 instances, a 6% increase from 2021 and more than the total number in each year from 2014 through 2017. “Underrepresented groups are often only invited into the CEO role when the chips are down,” she says. “They need to make sure they have the complete support of the board and shareholders.”