Fewer CEOs Fired Means Savings for Shareholders

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By Jeff Green

April 13 — For every company such as Target Corp. or Sanofi that ousted its top executive last year, there were many more like Wal-Mart Stores Inc. and Ford Motor Co. where the transition was planned, saving shareholders billions of dollars.

About 14 percent of chief executive officers who left jobs at the world's 2,500 largest public companies last year were fired, the lowest rate in at least 15 years, according to a study by PwC unit Strategy&. That's good news for shareholders because a company that fires its leader without a succession plan loses on average $1.8 billion in market value from the disruption, the study found.

“Boards are starting to take more control and it shows,” Gary L. Neilson, a senior partner for Strategy& in Chicago and one of the study's authors, told Bloomberg News.

Directors have been under pressure from activist investors to assert more power over CEOs and get involved earlier in developing replacement candidates.

Board Responsibility

“Investors like stability and predictability where possible,” said James Post, a governance professor at Boston University School of Management. “During the last 15 years, there's been a growing awareness that leadership succession is one of the primary responsibilities of the board.”

In the U.S., Wal-Mart had telegraphed for months that CEO Mike Duke was going to retire before he was replaced last year by Doug McMillon. Ford had set up Alan Mulally's replacement, Mark Fields, 18 months before Mulally retired last year. The automaker takes succession planning very seriously, said Mike Moran, a spokesman for Dearborn, Mich.-based Ford.

Sanofi fired CEO Chris Viehbacher, in October, ending a tense six-year tenure after he shifted the Paris-based drugmaker's focus to the U.S. and overhauled its struggling research operation. His replacement wasn't named until February and takes office this month.

Gregg Steinhafel resigned as Target's CEO in May as the retailer struggled to right itself after a holiday season data breach and an expansion into Canada hurt profit. The Minneapolis-based company hired a PepsiCo Inc. executive to take over in July, the first Target CEO chosen from outside the company.

Companies that have unplanned CEO departures are more likely to hire an outside CEO and those leaders have shorter tenure than executives who are promoted from within, according to the study.

To contact the reporter on this story: Jeff Green in Southfield, Mich. at jgreen16@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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