The holiday weekend saw two more high-profile CEO departures, adding to the record number of resignations on Wall Street. The leaders of chipmaker Intel and auto giant Stellantis both announced their resignations.
According to Challenger, Gray & Christmas, this year has seen the highest year-to-date figure for CEO departures since the firm began tracking those numbers in 2002. Through October, the number of CEO exits has risen by 19% compared to the same period last year, from 1,500 to 1,800.
David Kass, a professor of finance at the University of Maryland, notes that boards are holding CEOs more accountable for underperformance in profits and stock prices, contributing to the decline in the average tenure of CEOs.
Michael Farr, chief market strategist for Hightower Advisors, added that when a company underperforms, the CEO must take action. If they cannot resolve the issue, the board will replace them, even if the CEO is not at fault.
The strong performance of the stock market is another factor pressuring boards to demand stronger results from their CEOs. For example, the S&P 500 rose by 20% in 2023 and is expected to surpass that by the end of 2024. Additionally, the “Magnificent Seven” tech stocks have significantly outpaced other companies, setting a higher benchmark for performance.
Another factor is the Federal Reserve’s high interest rates aimed at reducing inflation. Previously, companies were motivated by low debt costs to buy back shares and invest in value-adding projects. Now, with higher interest rates, those incentives have diminished, making it harder for CEOs to deliver strong results.
Nevertheless, Russell Reynolds, a consulting firm, stated that companies are embracing higher risk and seeking leaders who can navigate the complexities of the macro business environment.
