Executive Turnover Leads to Unpredictable Consequences

Employee turnover is frequently discussed, but the focus is on staff and manager levels.
Now it is time to talk about executive turnover.
—By Dave Desouza

As an elite group of people who have often reached the pinnacle of their careers, successful executives are in great demand. They reach their positions through dedication to work performance, smart decision-making, careful career planning and development of leadership abilities.

In the past, it was common for CEOs and other top executives to remain in their positions for many years or even decades. Today, that is not as true as it once was. Executive turnover rates have increased, with companies regularly losing top people, creating stakeholder concern about the impact on their organizations. Every executive succession has consequences.

It is important to evaluate the reasons for the turnover and draw insights from executives who left and those who stayed and led their companies into a sustainable future. The insights become the foundation for developing future executives.

Reasons to Leave
There are many considerations when selecting people for high-level executive positions. It is not just experience that counts because organizations are at different stages of their life cycle (new, growing or mature); may be facing difficult issues like loss of competitive status in the marketplace; or might be dealing with internal problems like an obsolete organizational structure. The business could be pursuing new domestic or global markets, developing new product lines, or considering growth through acquisition.

Putting the right people in senior-level positions, who are prepared to successfully manage based on a company's unique status and current/future needs, has a direct impact on future success and executive retention.

Executive turnover is a serious issue. Executive recruiting firm Challenger, Gray and Christmas research showed that 132 CEOs stepped down in January 2018. This number represents a 3 percent increase year-over-year and equaled the number of executives stepping down in February 2010. Some remained as board members and some stepped down into a different executive position, but most left their organization (voluntarily and involuntarily). There are many reasons for the exits, including age, a board desire for new leadership able to better manage in a dynamic business environment, and accusations of impropriety or ethics violations.

High executive turnover is likely to hurt any organization, and there are numerous reasons this is true. People who reach executive positions have developed strong business and social networks.
The numbers got worse as 2018 progressed. In August 2018, 154 CEOs left their positions, which is the largest number of such executives to leave in one month since 2002. There were 879 CEOs displaced, and 152 were women.

Those who leave voluntarily are doing so for many different reasons. "Voluntarily" is used a bit loosely because some executives leave in anticipation of being asked to step down. Board members may decide they need an outsider with new perspectives or decide they want talent with more technology experience or global experience.

In some cases, boards of companies like Chipotle Mexican Grill, which has had numerous issues around food safety, decide they need new people who can overcome a problematic reputation. The new CEO Brian Niccol had turned the Yum! Brands unit around through strategies like re-franchising and global growth. He is credited with making Taco Bell a trendier restaurant option and popular with millennials.

Networking for Retention and Success
High executive turnover is likely to hurt any organization, and there are numerous reasons this is true. People who reach executive positions have developed strong business and social networks. They have nurtured important relationships in the relevant industry, and these relationships benefit the business. Senior-level executives usually have a deep knowledge of the industry.

All of these qualities together create a culture within the organization. Like a woven fabric, pull the connecting thread, and it all falls apart.

CFO executive Davis Nish was promoted to CEO at Standard Life. He was charged with leading the company's transformation from an insurer to an investment and long-term savings company. Recognizing he would need to make decisions and handle management issues he had little experience with, the first thing Nish did was turn to Niall Fitzgerald who was the former chairman of Unilever. The mentoring relationship was key to Nish's success.

The other issue is that boards sometime think that all their problems will be fixed by removing a top executive or letting a qualified person leave, when in fact, they are "pulling the thread" holding everything together. Whether by forced or voluntary exit, skills are lost, the culture is changed, and the workforce is left with uncertainty. Productivity is likely to decline, and other areas of performance can be harmed.

Firm-specific experience has value, so the next step is learning how to develop executives based on incorporating insights from the successes and failures of prior executives internally and externally. This enables continuity of culture and performance.

Freedom to Manage
The ideal person for an executive position depends on the company culture and its needs.

Sylvia Metayer is the CEO, Corporate Services Worldwide at Sodexo. Under her leadership, Sodexo has repeatedly been named one of Fortune's "World Most Admired Companies." Metayer's visionary leadership was ideal for a company that wanted to change from a traditional operating model to a collaborative one that appeals to millennial clients and employees. There is no doubt that Sodexo's board had to give Metayer the freedom to initiate and manage change, making it much more likely she would remain in her position, which she has done.

To minimize executive turnover, companies can first look at internal talent with high potential. Once identified, leadership development can focus on the particular qualities that are important to corporate success.

Does the company need a transformational leader or a person who can direct global growth? Does the corporate culture need improvement to increase competitiveness in the labour market? Do executives need to lead the redesign and expansion of product lines, or to cut operating costs? Learning from past CEOs who have successfully led their companies is a good start to creating the appropriate development plan while also helping companies avoid mistakes.

There are skills that all executives need today. One is the ability to develop and nurture a supportive network. Another is the ability to balance strategy development and execution. A third skill is the ability to lead in a multicultural global environment in an ethical and transparent manner.

Develop the right skills in potential executive talent, and once people step into their roles, they are more likely to remain.