Corporate Boards Dismiss CEOs at Record Pace, S&P 500 Tenure Drops 15%

In recent months, there has been a notable trend of increasing impatience among corporate boards, leading to a higher number of CEOs being dismissed or forced to resign. This trend is particularly evident in the United States, where several high-profile companies have made significant changes to their leadership.

One of the most recent and surprising examples is the dismissal of Hein Schumacher, the CEO of Unilever. Schumacher, who had been in the role for just 20 months, was unexpectedly replaced by Fernando Fernandez in late February. The board's decision was communicated bluntly in a company press release, indicating a lack of patience with Schumacher's performance. This move by Unilever is part of a broader trend where the average tenure of CEOs in S&P 500 companies has decreased to 8.3 years, the lowest since 2017. This trend suggests that boards are becoming less tolerant of underperformance and are more willing to make swift changes to leadership.

The reasons behind this trend are multifaceted. One key factor is the increasing pressure on companies to deliver immediate results in a rapidly changing business environment. Boards are under pressure from shareholders and stakeholders to ensure that their companies remain competitive and profitable. This pressure can lead to a lack of patience with CEOs who are perceived as not meeting expectations quickly enough.

Another factor is the evolving role of the CEO. In today's business landscape, CEOs are expected to be not just leaders but also visionaries who can navigate complex challenges and drive innovation. This heightened expectation can make it difficult for CEOs to meet the demands of their roles, leading to more frequent dismissals.

This trend of increasing CEO dismissals also reflects a broader shift in corporate governance. Boards are becoming more proactive in their oversight roles, with a greater focus on accountability and performance. This shift is driven by a desire to ensure that companies are well-managed and that shareholders' interests are protected. However, it also raises questions about the long-term implications of such a trend. Frequent changes in leadership can disrupt a company's strategic direction and undermine employee morale, potentially leading to long-term negative consequences.

In the past six months, several notable examples of CEO departures have emerged. Bernard Kim stepped down as CEO of Match Group Inc. after less than three years, unable to halt the user exodus from the flagship dating app Tinder. David Kimbell left Ulta Beauty Inc. after 3.5 years due to intensified competition. Patrick Gelsinger was removed as CEO of Intel after less than four years as the board lost confidence in his turnaround plan. Karen Lynch departed from CVS Health Corp. after 3.5 years due to underperforming results. Laxman Narasimhan was ousted from Starbucks after less than a year and a half amid pressure from activist investors and a declining stock price. David Calhoun left Boeing after nearly four years as the company faced a safety crisis.

This shift in board attitudes is partly due to their increased involvement in company affairs, moving away from mere rubber-stamping of CEO decisions. This change began with the Sarbanes-Oxley Act of 2002 and accelerated during the pandemic. Larger companies, in particular, are experiencing this trend more acutely. From 2010 to 2024, a higher percentage of forced departures occurred in S&P 500 companies compared to S&P 600 companies, at 15% and 6% respectively. This is attributed to larger boards having more specialized directors who hold CEOs more accountable.

However, boards should not assume that replacing a CEO will magically solve all problems overnight. For instance, despite changing its CEO, Boeing continues to burn through cash. Similarly, under the new leadership of Brian Niccol, Starbucks' sales have continued to decline. The turnaround of Chipotle Mexican Grill Inc., which Niccol previously led, took time and required patience. Boards are not necessarily lenient with Niccol; they are simply willing to be patient.

In summary, in this era of urgency, boards are giving CEOs less time to execute strategies or turn around companies, often leading to swift decisions to replace them. This phenomenon stems from a "fear of missing out" mentality, where boards worry that without the right leadership, they might miss opportunities in a rapidly changing environment. While this risk may be real, boards must also balance this concern with the need to allow talented executives the time to deliver results.