The rate of CEO succession in low-performing S&P 500 companies is up 4.9 percent in the last year, climbing to record high of 17.1 percent, according to the annual report from The Conference Board.
In 2016, CEOs of poorly performing companies were 40 percent more likely to be replaced than in 2015, and 60 percent more likely to be replaced than the CEOs of better-performing companies. The Conference Board defines poorly performing companies as those with an industry-adjusted two-year total shareholder return in the bottom quartile of the S&P 500 sample.
The report authors note that corporate culture has shifted to hold executives more accountable for company performance. As CEO salaries draw greater scrutiny, there is less tolerance for highly paid CEOs who do not produce results.
Boards and shareholders have also become less secretive in their reasoning for terminating CEOs, no longer relying on vague retirement euphemisms but instead using more direct, if still unspecific, language.
There is also more transparency around CEO succession plans. Boards more frequently issue disclosures that provide shareholders with more advance notice about a pending change at the top and offer more detail about the reasons for a change.
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