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CEO replacements are somewhat frequent when viewed across the entire industry. Leblanc (2020) finds 54 succession cases in the S&P 500 during 2017, over 10%. With that said, some companies tend to replace their CEOs relatively frequently while others have the same person in the position for decades. The reason for this difference may be the expectations that the company has for its CEOs, particularly in terms of leadership. Those replacing their CEOs frequently are looking for change and innovation, while those retaining the same pursue stability at the potential cost of opportunities.
Many long-standing CEOs likely entrench themselves in the company after an initial period of successful performance. Per Conyon and Thomsen (2019), as the board becomes more confident in the leader, the risk of them being replaced diminishes accordingly, though the process stops at some point. However, by then, it may be too late to remove the new CEO. Said and Saidon (2020) state that the period gives them time to build alliances and amass power, ultimately becoming challenging to remove. Then, they pursue stability and minimize risks to avoid attracting the shareholders’ ire and retain their position.
Companies that replace their CEOs frequently may be trying to avoid this tendency because they have a different view of leadership. Roe (2020) finds that newer paradigms on it tend to include risk-taking, as it is linked with creativity and the innovation it brings. However, they may also be pursuing other motivations, such as the desire to maximize performance. Cole (2019) finds that new CEOs are overall more competent than ones with longer tenure because they are open to outside opinions and take more risks. As such, companies that seek these traits in their leaders may replace CEOs frequently, even if their current ones are still satisfactory.
References
Cole, T. A. (2019). CEO leadership: Navigating the new era in corporate governance. University of Chicago Press.
Conyon, M., & Thomsen, S. (2019). Corporate governance and board decisions. DJØF Publishing.
Leblanc, R. (Ed.). (2020). The handbook of board governance: A comprehensive guide for public, private, and not-for-profit board members (2nd ed.). Wiley.
Roe, K. (2020). Leadership: Practice and perspectives. Oxford University Press.
Said, R., & Saidon, I. M. (2020). Ethics, governance and risk management in organizations. Springer Singapore.
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