BRIEFINGS PODCAST: THE GREAT CEO EXODUS

The Great CEO Exodus

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Rupak Bhattacharya:
Hm, I wonder what's on TV.

News Anchor #1:
It's the highest single-month total of CEO exits that we've recorded since we started tracking these numbers.

News Anchor #2:
Longtime YouTube Chief, Susan Wojcicki, she is stepping down. She announced so in a blog post, and her garage was famously the first Google office, so she's been there for a long time.

News Anchor #3:
CNN's Chairman and CEO, Chris Licht, is leaving the network. Licht took over the network a little over a year ago.

Rupak Bhattacharya:
Okay, I get it. CEOs are leaving their companies, like big time. Also, it's probably time I get a new TV.

Jill Wiltfong:
Hi, this is Jill Wiltfong, Chief Marketing Officer for Korn Ferry, and this is Briefings, our deep dive into the world of leadership.

Today, we're looking at how so many CEOs these days have all of a sudden left or been replaced. In the first half of the year, turnover at the very top hit record levels. Some are being pushed out. Others are walking out. It's a disruption to firms, to be sure. We call it the Great CEO Exodus.

With me today is Alan Guarino, co-founder of Korn Ferry's CEO Succession Practice. We're going to talk today about what's going on, why this is happening, how we got here, and what we can do about it. Hi, Alan.

Alan Guarino:
Hi, Jill. That's a lot to talk about.

Jill Wiltfong:
Well, I think you can do this. Alan, in the first half of the year, over 900 CEOs at US companies, private and public, have left. That's about five a day. And this isn't just a US issue. CEO departures have been strikingly high in the UK as well. What's going on?

Alan Guarino:
I have lots of CEOs that really don't love work, and that blows people's minds when I tell them that. They think, as you said, "Oh, once you become a CEO-"

Jill Wiltfong:
Yeah, it's hard.

Alan Guarino:
No, they're unhappy with their board. Their board's not giving them the freedom they want. They're unhappy with the analysts, because they have a 90-day window to do it again every 90 days, and they don't have a chance to play the long game. And they feel as though, although they won't tell anyone, they're playing not to lose instead of playing to win. Why? It's a lot riskier to play to win. There's all kinds of stuff going on in that C-suite at the top of the top that people just don't appreciate, so it's tough.

Linus Sebastian:
I'll be stepping down as CEO of Linus Media Group. The truth is, I was never really cut out to be a CEO. I'm a bottomless pit of creative energy, an excellent motivator and speaker. But in addition to those strengths, I have a lot of weaknesses, and chief among them is that I've just never really had the attention to detail or the temperament that it takes to run an organization this large.

Jill Wiltfong:
Well, that was a remarkably frank admission from Linus Sebastian, who's the CEO of a small media firm. Most CEOs leaving haven't been quite so candid. But Alan, whether it's a Fortune 500 company or a small business, how disruptive can these changes at the very top be to an organization?

Alan Guarino:
It's the supreme shock. It is. The leader sets the tone for so many things, and when a new leader comes in, the first thing that happens is all the people that are key stakeholders around that new leader, that work under that new leader start asking themselves, "Gee, does this person care about my career? Is this person like me? Do I feel safe with this person? Can I work for this person?" So that is energy that they didn't use to expend that much when they were in a mature environment with a leader that had been around for a while. They knew where they stood. Same thing happens with the board, who says, "Wow, this is a new dialogue. This is a whole new discussion." They have to relearn what it's like to interact with their CEO and how that's going to play out.

Jill Wiltfong:
One study that we saw from the International Journal of Financial Research estimated the average cost of a sudden CEO departure at $136 million. Alan, really?

Alan Guarino:
Average cost? I don't know. If it's the Fortune 50, put another comma and a B after the number, because the shock to the system is huge. I wrote a paper several years ago called the $40 trillion risk, because I aggregated the market capitalization of all public companies in the world, and I said, "There is a $40 trillion global risk to shareholder value that is out there. It is not a black swan. I guarantee you it will happen, and it will probably happen in three to seven years for every company, period, that is publicly listed anywhere in the world." What is it? The CEO is going to leave. That's what it is. It is a massive risk to shareholder value.

News Reporter:
What do you think is the reason for this high turnover rate in this post-pandemic era?

Alan Guarino:
What's behind the CEO turnover? Well, the first thing you have to ask is, how many are leaving by choice, and how many are leaving because they're being asked to leave? So when we hear about CEO turnover, we think, "Well, they're retiring, or they're choosing to go." There's a pretty significant undercurrent around CEOs and their boards thinking the company could be doing better or could be doing things differently. So coming out of COVID, the COVID freeze I call it, there is now this real pent-up desire to do things better and different, and certainly growth is part of it, and this is not necessarily an economy that's supporting growth for a host of reasons. So there's many, many reasons for the CEO turnover, but it's not as simple as CEOs deciding they'd like to make a change.

Jill Wiltfong:
And that was you, Alan, speaking there, and I completely hear what you're saying, but I don't hear you using one key word that might explain some of these departures, which is burnout. Could that be a factor here?

Alan Guarino:
It's a big factor, and it goes back to the cocktail of COVID and then pace, complexity and globalization, pace, complexity and globalization is a recipe for burnout to begin with. The playing field today for work is a professional playing field. It's not Division II sports. It is the Super Bowl every day. That's tiring, really tiring. You got to be in shape, and you got to find ways to recharge.

Interviewer:
How do you address personal burnout? Do you have any advice for people that are going through that? How do they hit refresh?

Satya Nadella:
I think the key is to be able to not overdo the connection to the thing that is burning you out, but to somehow keep that flame, which is the core passion you have, persist. That's, I think, the artform.

Jill Wiltfong:
That's Microsoft's CEO, Satya Nadella, speaking. And by the way, he hasn't quit. So we've covered some of the mystery here behind the great CEO Exodus. There's burnout. There's pressure from stakeholders, retirement. But assuming all these departures aren't sustainable, what can companies do to keep CEOs around? Actually, there may be some answers. More on that after the break.

Richard Nixon:
In all the decisions I have made in my public life, I have always tried to do what was best for the nation. Therefore, I shall resign the presidency, effective at noon tomorrow. Vice President Ford will be sworn in as president at that hour in this office.

Jill Wiltfong:
So we're back with Alan Guarino, co-founder of Korn Ferry's CEO Succession Practice, and we're focusing on why CEOs keep hitting the road. For those of us in the US, Alan, we all remember or read about that famous resignation speech by Richard Nixon. But in government, even with the most jarring departures, you have a specific succession plan really spelled out by a country's government. Businesses don't always have that. So how does that work when the CEOs leave unexpectedly?

Alan Guarino:
When CEOs leave unexpectedly, there's a huge risk associated with the company falling, stumbling and potentially getting into a track that could lead to massive failure. And that's not an exaggeration. So the stakes are high. The board has a fiduciary responsibility to be sure they're ready for this. It is a critical responsibility of either the compensation or the nominating governance committee of the board to be ready for that issue.

Jill Wiltfong:
So, Alan, we spent a lot of time talking about the situation and what's happening in the world today. What's the solution? How do we keep CEOs on longer, or how do we better prepare for their departure?

Alan Guarino:
I think you keep a CEO the way you keep any employee, the way you keep any colleague close or partner. Listen to them. Give them the opportunity to take risk. And obviously this is the board that's empowered to do these things. And at the end of the day, the CEO serves at the pleasure of the board, so if the board wants to move the CEO on, then that's their choice, and they brought around the change. And if the board, for whatever reason, creates an environment that the CEO believes is dysfunctional, at some point they're going to go. But like any dysfunctionality, that's usually a two-way street. Takes two to tango. CEOs have to work with their boards. Boards have to work with CEOs. Focus on customers, get the job done, take care of your people, and I think CEOs are happy. They'll stick around longer.

Rupak Bhattacharya:
Hi, I'm Rupak Bhattacharya. Thanks for watching and listening. Here's what else is happening in the world of business from Korn Ferry's This Week In Leadership,

News Anchor #4:
More and more companies are cutting their diversity, equity, and inclusion programs.

Rupak Bhattacharya:
After years of growth, support for DE&I programs has declined. Between July of last year and this year, DE&I job postings fell 38% on one major site alone.

Archival:
Good morning, everyone. Welcome to the meeting. For this meeting, we do require you to have your cameras on.

Rupak Bhattacharya:
According to one survey, nine in ten executives now take a dim view of people who turn off their cameras on Zoom. They question if these workers have a future at the firm.

J.R. Whalen:
Is feedback now too harsh? More companies are opting for a gentler term.

Rupak Bhattacharya:
And finally, the word feedback may be on its way out of the corporate lexicon. In efforts to decrease employee anxiety, some companies are instead opting for the word feedforward. Similarly, the word review is also endangered, as performance reviews are now being called connect sessions or check-ins by some companies. For more insights on business and leadership, head to kornferry.com/insights.

Jill Wiltfong:
The Executive Producer of Briefings is Jonathan Dahl. Today's episode was produced by Rupak Bhattacharya, Chelsea Starks, Nadira Putri, and Teresa Allan, and edited by Jaron Henrie-McCrea. It contains reporting by Russell Pearlman, Arianne Cohen, and Peter Lauria. Our video segment contains original artwork by Frazer Milton, Hayley Kennell, Jonathan Pink and Sasha Kostyuk. Don't forget to read our magazine, available at newsstands and at kornferry.com/briefings. That's it for Korn Ferry's Briefings. I'm Jill Wiltfong. We'll see you next time.