Fewer CEOs Got Canned in 2009 as Economy Improved, but 2010 May Be Worse

CEOs in corporate America got fired less frequently in 2009 as profits were lifted by the improving economy. The bad news in Booz & Co.'s 10th annual CEO Succession Study is that corporate leaders have less time than ever to deliver results before they're apt to be booted out.CEOs in corporate America got fired less frequently in 2009 as profits were lifted by the improving economy. The bad news in Booz & Co.'s 10th annual CEO Succession Study is that corporate leaders have less time than ever to deliver results before they're apt to be booted out.

The so-called "forced CEO turnover rate" fell to 3.3% globally, its lowest level since 2003, according to a review of 2,500 companies. This follows a 5.1% rate in 2008, which was the highest level in a decade. The number of ousted CEOs fell in nearly every region and industry, the report says.

To be sure, not every beleaguered corporate leader escaped unscathed last year, including Rick Wagoner from General Motors and Kenneth Lewis, who was ousted as chairman and then resigned under pressure as CEO of Bank of America (BAC). Not surprisingly, the report found the financial services industry had the most CEO turnover.

More Companies May Be Willing to Change Leaders in 2010

If the economy continues to improve as experts predict, boards of directors of struggling companies who didn't want to change CEOs when times were tough may be willing to replace corporate leaders now. Moreover, increasing numbers of companies have split the role of chairman and CEO, forcing executives who used to be the boss to have a boss that they may have trouble accepting.

"I would expect in 2010 to see an increase in both departures and forced departures," says Gary Neilson, a senior partner at Booz & Co. in Chicago, in an interview. "As people come out of bad times... they will say now is the time to change."

In the past decade, Booz says the average tenure of a CEO has dropped from 8.1 years to 6.3 years. In 2009, less than 12% of incoming CEOs also had the chairman's job. Interestingly, the study noted that boards have picked insiders over outsiders 80% of the time since 2000. Most of the jobs go to corporate insiders for a reason: Insider CEOs generated 2.5% in market-adjusted shareholder returns, versus 1.8% for outsiders.

CEO Incentives Have Increased

CEOs have more incentives to do the right thing. More than half of the country's 100 largest companies have "clawback" provisions, requiring executives to return part of their pay generated through malfeasance such as manipulating earnings, according to Bloomberg Businessweek. In 2006, only 17.6% of companies had such a provision.

Though Booz's report doesn't single out any company, there are plenty of CEOs who remain in Wall Street's dog house. For example, Boeing (BA) Chief Executive W. James McNerney has endured the wrath of shareholders for years because of repeated delays for the company's 787 Dreamliner plane. The latest delay, reported Tuesday by The Wall Street Journal, may only add to pressure on the aerospace company to replace its CEO.

Few shareholders will have much sympathy for the increased pressures on CEOs to do their jobs. Data from The AFL-CIO's Executive PayWatch site shows the head of an S&P 500 stock index member company was paid on average $9.25 million in total compensation in 2009.

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