A board may feel compelled to terminate a CEO in the face of consistently poor financial results or because of actual or perceived flaws in the company’s business or strategy. generally objectionable behaviour, such as abuse of power. In June 2020, U.S. brand CrossFit, LLC’s CEO resigned following a public outcry over distasteful and offensive tweets pertaining to the murder of George Floyd and the COVID-19 pandemic. As companies are increasingly expected to be model corporate citizens, so too are their leaders. This has resulted, and will continue to result, in boards and stakeholders having little tolerance for CEO behaviour that jeopardizes a company’s reputation. – CEO misconduct. One of the most common reasons for forced CEO departures is personal misconduct. This is characterized by the CEO’s improper or vocal shareholders begin demanding change, whether privately or publicly, underscoring the need for boards to engage with stakeholders and be responsive to their concerns. A recent high-profile example is John Foley’s departure as CEO of Peloton Interactive, Inc. in February 2022, following activist investor Blackwells Capital, LLC’s campaign after post-pandemic sales dwindled considerably. Blackwells cited failed forecasting, inconsistent strategy and governance problems among its reasons for demanding Foley’s resignation. In July 2022, Mark Little abruptly resigned as CEO of Suncor Energy Inc. following the latest of a series of fatalities at Suncor’s sites that highlighted the company’s poor safety record and failure to fix operational concerns with its business.
16.4% in 2017. In 2020, companies in the healthcare, utilities and information technology sectors ranked among the highest percentage with non-executive directors appointed as CEOs, at 44%, 36% and 24%, respectively. This is in stark contrast to 2017, in which these percentages were 27%, 17% and 18%, respectively. Business outlook, specialized industry knowledge and talent availability could explain why more non-executive directors are transitioning into CEO roles in these sectors. Reasons for CEO Turnover: Davies Study Each year, companies provide various reasons for CEO departures, ranging from voluntary retirement to termination for mismanagement. Those reasons can have implications for the company in both the short and the long terms. According to our study of selected data regarding high-profile CEO departures since 2020, the primary reasons for CEO departures were as follows: – Retirement policy or regular succession planning. Several companies have policies that contemplate a mandatory retirement age for CEOs and/or require that they resign after a specified number of years. Some market participants view mandatory retirement age policies and term limits as useful tools that provide predictability and enable other qualified individuals to transition into the CEO role. Others argue that these policies can force high-performing leaders to retire at an arbitrary age and are no longer necessary in an era in which boards are much more engaged in CEO oversight. – Underperformance. A board may feel compelled to terminate a CEO in the face of consistently poor financial results or because of actual or perceived flaws in the company’s business or strategy. As one might expect, this is particularly likely to occur when
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Governance Insights 2022
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