The CEO is the highest-ranking executive in an organization, responsible for making strategic and operational decisions. As John Maxwell said, “everything rises and falls on leadership.” This role is a dream job for many ambitious individuals, especially considering the CEO-worker pay ratio, which was 287:1 in 2018, according to filings with the US Securities and Exchange Commission. However, a surprising statistic is that over half of CEOs are involuntarily dismissed from their positions, even founders like Steve Jobs (Apple) and Andrew Mason (Groupon) have faced this fate. So, what causes such high turnover, and how can current and aspiring CEOs maintain job stability?
Reasons for CEO Dismissal
The power to hire or fire a CEO rests with the board of directors, a group elected by shareholders to represent their interests and ensure the company’s management acts accordingly. LeadershipIQ.com, a leading organizational development consulting firm, conducted a four-year study involving 1,087 board members from 286 organizations that had fired or forced out their CEOs. The most recurring reason for dismissal was failed change management initiatives.
Change management is crucial in a rapidly evolving business world. Companies that fail to adapt often do so because their CEOs lack the necessary support and strategies. Forbes emphasizes that successful change initiatives start at the top, requiring a dedicated team of experts reporting directly to the CEO. Unfortunately, companies like Kodak and Yahoo have gone out of business due to poor change management and a lack of understanding of customer needs and market trends.
Another significant factor in CEO turnover is financial performance. While financial metrics are easy to measure, they can be influenced by external factors like economic recessions. However, a study of non-financial firms listed on Borsa Istanbul from 2005-2014 found that better financial performance reduces the probability of CEO turnover. This indicates that financial results, despite their limitations, are a critical aspect of CEO appraisals.
Check out our CEO Dismissal Tracker for more detailed statistics and cases.
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Strategies to Avoid Dismissal
For CEOs and founders, it’s essential to recognize their vulnerabilities and work proactively to mitigate them. Here are some strategies to maintain job stability:
- Build Strong Relationships with the Board and Team: A board that shares the CEO’s vision and culture is less likely to dismiss them without attempting to resolve issues collaboratively.
- Stay Informed and Adaptable: Be sensitive to market changes and understand their implications for your organization. This involves continuous learning and flexibility in strategy.
- Cultivate a Performance-Driven Culture: Do not tolerate non-performance. Ensure that all team members are accountable and aligned with the company’s goals.
- Follow Through on Action Plans: Consistently execute agreed-upon action plans to build trust and demonstrate reliability.