A dangerous time to be a bad CEO

Succession rate among bottom of S&P 500 up five percentage points.

The first half of 2017 has produced a string of CEO departures and successions, from startup CEOs whose behavior is under scrutiny to long-tenured Fortune 50 CEOs retiring after more than a decade at the helm. Uber’s Travis Kalanick. General Electric’s Jeffrey Immelt. Ford’s Mark Fields. J. Crew’s Mickey Drexler.

But the revolving door at the top of corporate America really started picking up speed in 2016 — at least for low performers — according to a new report on CEO succession.

In its annual report, released Tuesday, The Conference Board found that among S&P 500 companies that were in the bottom group of performers — as ranked by their total shareholder return — the CEO succession rate jumped five percentage points, from 12.2 percent in 2015 to 17.1 percent in 2016. That’s well above the 13.9 percent average over the past 16 years, said Matteo Tonello, the Conference Board’s managing director of corporate leadership, and the highest rate since 2002, when 21.2 percent of S&P 500 companies made a change at the top.

“If you fall into the bottom quartile you had a 60 percent higher probability of seeing your CEO replaced than the better performing companies in 2016,” he said. While he said it was too early to point to a definitive reason for lower performers being shown the door, a perfect storm of more pressure from activist investors, more scrutiny on the link between CEO pay and performance, and more dismissals in certain hardhit sectors prompted the relatively high boost from years past.

Jason Schloetzer, a professor at Georgetown University and a co-author of the report, said he thinks the uptick in changes is “reflective of the shorter leash and the decrease in patience that boards and shareholders in general have for waiting out periods of poor performance.”

The report found that trend to be particularly true in sectors like retail, oil and gas and consumer products, where CEOs were either hit by broader economic trends or industry upheaval that made for tougher competition.

Half of the CEO jobs that changed hands in the wholesale and retail industry in 2016, for instance, were outright dismissals, rather than mere retirements, compared with 14 percent in 2015.