Reading between the lines when CEOs abruptly 'step down'

Ambiguous language around CEO departures can obscure the circumstances or drivers of their exits. Researchers are trying to find correlations that get the real story. 

A team of researchers from Stanford Graduate School of Business and Yale School of Management looked beyond the language of CEOs who "stepped down" to examine the push-out scores of nearly 1,400 turnover events at Russell 3000 companies between 2017 and 2021. The push-out score was developed by financial journalist Daniel Schauber to assess the likelihood that a CEO was pressured to resign versus voluntarily leaving their role. 

The researchers found a high push-out score for 29 percent of turnover events, suggesting an involuntary departure. Only 23 percent had a low score indicative of a voluntary exit.

The research also found strong correlation between stock price performance and the likelihood a leader was pressured to quit. CEOs with low push-out scores delivered shareholder returns of around 8 percent in the three years leading up to the news of their departure compared with -42 percent for those with scores suggesting they were terminated.

Voluntary separations almost always involve the naming of a permanent CEO, while involuntary exits involve a higher number of interim successors, who are associated with worse financial performance. The researchers' paper, "Firing and Hiring the CEO: What Does CEO Turnover Data Tell Us About Succession Planning?" suggests boards usually appoint an interim leader because they fired the incumbent — not because the incumbent unexpectedly resigned. 

Another sign the CEO was forced out? They are more likely to join other ventures as CEO, executive, investor, consultant or founder. CEOs who step down voluntarily are more likely to join the organization's board or retire. 

Determining whether the incumbent CEO was fired or voluntarily resigned is helpful information to assess the quality of the organization's board and its tolerance for CEO underperformance. In their paper, researchers posit that 4 out of 10 CEOs retain their jobs despite five years of worst-in-class performance based on return on assets.


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