Corporate boards should not show CEOs the door prematurely

“While the Board is pleased with Unilever’s performance in 2024, there is much further to go to deliver best-in-class results," said Unilever chairman Ian Meakin in the announcement. Schumacher will be replaced by current Unilever chief financial officer (CFO) Fernando Fernandez, who has the ability “to drive change at speed" and capitalize on the company’s growth plan “with urgency."

It all came down to that one word, much beloved by Wall Street: urgency. In the end, the board decided that if Schumacher was not going to move fast enough, it would. Just 20 months into his tenure, Schumacher was out.

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It’s not fun for a board to replace a chief executive, which is why CEOs often hold onto their jobs longer than they should. Big transitions can open up a company to big risks, and a board never quite knows how chief executives will perform until they’re in the chair.

But in this age of urgency, driven by impatient shareholders, boards are giving their CEOs less time to execute their business strategies or turn things around before deciding it’s time to move on. 

I’ll diagnose it as a serious case of corporate FOMO—fear that if they don’t have the right leader in place, they will miss out on the opportunities that can come in rapid moments of change. While that risk might be real, boards need to balance that against pushing out talented executives before they have time to deliver results.

“More than I’ve ever seen, boards will say their companies are at a crossroads right now," said Jim Citrin, partner and lead of the CEO practice at executive search firm Spencer Stuart.

It’s a critical moment to leverage technology such as artificial intelligence (AI) and changing consumer behaviour such as personalization and e-commerce, but they realize ‘if we don’t capitalize on it, we’re going to be roadkill.’

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An analysis of the Russell 3000 Index by Exechange.com found that more CEOs were fired or forced out in 2024 than at any point since the firm began tracking the metric in 2017. And overall, Spencer Stuart found that the tenure of departed CEOs of S&P 500 companies was 8.3 years in 2024, a low since 2017 and down by about three years since a 2021 high of 11.2 years.

In the last six months or so, a slew of high-profile exits have clocked in under that average. Bernard Kim departed as CEO of Match Group in February after less than three years in the job, unable to stem a user exodus from its flagship dating app Tinder. 

In January, David Kimbell was gone from Ulta Beauty after 3.5 years in the face of greater competition; in December, Patrick Gelsinger was out as Intel. CEO after less than four years, having lost the confidence of the board in his turnaround plan; two months earlier, Karen Lynch exited from CVS Health after 3.5 years amid earnings misses; and Laxman Narasimhan didn’t even make it a year and a half at Starbucks before the board pushed him out in August as activists circled and the stock price cratered. 

That same month, David Calhoun left Boeing Company after less than four years, the aeroplane maker’s safety crisis making his continuation in the job untenable.

Part of what’s behind the decline is a shifting mindset among corporate directors, who are getting more hands-on and are unwilling to act as a rubber stamp for their CEOs. This move toward more ‘active management’ started in 2002 with Sarbanes-Oxley and really ramped up during the pandemic, Citrin told me.

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This is particularly true of big companies; Spencer Stuart found that between 2010 and 2024, there were significantly more forced exits at S&P 500 companies than S&P 600—15% versus 6%. “The bigger the board, the more professional they are and the more they hold their CEO accountable," said Claudius Hildebrand, a consultant at the search firm and co-author of The Life Cycle of a CEO.

Yet boards should be wary of thinking that a CEO change is going to be some magical overnight cure for all of their problems. Look at Boeing, which is still burning through cash despite the CEO switch. Or Starbucks, where sales have continued to fall under new CEO Brian Niccol.

It’s worth remembering that Starbucks hired Niccol in the first place because he transformed a faltering Chipotle Mexican Grill into one of the quick-service food industry’s biggest success stories.

That turnaround took time, as most do. The board didn’t give him a pass; it was just willing to be patient. ©Bloomberg