Is it getting tougher at the top for company bosses?

American football may not be everyone’s cup of tea but no less a figure than former Manchester United manager Sir Alex Ferguson drew inspiration from a biography of the legendary Green Bay Packers coach Vince Lombardi. He shaped a small club in Wisconsin into the National Football League’s dominant force, winning the first two Super Bowl championship games in the early 1960s, and leaving behind him both a sporting legacy and a rich trove of inspirational quotes.

One gem from Lombardi was “Winners never quit and quitters never win”. With that in mind, this column is intrigued to see how the number of Chief Executive Officers (CEOs) leaving their post is running at a relatively high level among the elite ranks of the FTSE 100 here in the UK and at record levels in the USA.

This is not to say that all of those individuals have just thrown in the towel. But it is intriguing to see changes in the boardroom running at, or above, levels previously only seen during much tougher times for the economies and stock markets of the UK and USA. Should investors therefore be taking the hint that those individuals with perhaps the best insight into their charges’ fortunes are bailing out now, while the going could still be seen as good?

Dime a dozen

When Kingfisher boss Véronique Laury stepped down just this week (25 September), she became to tenth FTSE 100 CEO to do so this year. Two more changes, at Royal Bank of Scotland and then Ferguson, will become effective before the year end and three more bosses are already preparing to step down in 2020, in what Auto Trader, Land Securities and Centrica are hoping will be smooth transitions.

This year’s tally of a dozen changes in boss already with three more announced compares to a post-2000 average of 12 changes a year.

Source: Company accounts. *2019 changes as already happened or due to happen.*2020 changes as already announced in 2019 and planned for 2020.

But it is not just in the UK where changes at the top are coming quickly. Research from outplacement, business and executive coaching specialist Challenger, Gray and Christmas shows that America has just seen the highest number of CEO departures in any individual month in 17 years.

Boardroom shuffle

According to the latest monthly report data from the Chicago-headquartered firm, 159 US CEOs stepped down in August 2019, a monthly record.

That takes the total number of changes in boss stateside to 1,009 for 2019 to date, 15% higher than a year ago and the highest total for the first eight months of the year since Challenger, Gray and Christmas began to keep records in 2002.

Source: Challenger, Gray and Christmas

This puts the US on track to exceed the number of CEO departures seen in 2008, when many bosses not surprisingly took the chance to head for the hills when they could.

The question that investors must now address is whether the pace of CEO changes on both sides of the pond is telling them something about the global economy and corporate profits.

All change

There are several reasons why a CEO should go, voluntarily or otherwise.

  • Share price performance has been poor, something has gone wrong or both and investors or the board felt it was time for a change. The rise and rise of activist investing continues to increase the pressure on CEOs to deliver.

  • Companies where perhaps investors felt it was time for a change or the executive in question felt ready for a fresh challenge or a break.

  • There may be instances where the executive feels now is a good time to go, to ensure their legacy looks like a good one.

  • With this latter point in mind, the more cynically-minded may wonder whether some American executives are getting out while the going is still good, and their share options are looking promising, as the benchmark S&P 500 index reaches for the 3,000 mark once more.

    After all, the previous peak in CEO changes – according to Challenger, Gray and Christmas’s American data – came in 2008, just before the wheels fell off the global economy and stock market alike.

    Source: Challenger, Gray and Christmas, Refinitiv data

    It is possible to counter such dark thoughts, however.

    August’s US CEO departure rate of 159 is just 3% higher than August 2018 and the rate of growth in changes of leader has slowed markedly over the past 12 months.

    Source: Challenger, Gray and Christmas, Refinitiv data

    It can be argued that economic data is starting to stabilise in the US, after a sticky patch, and bulls will assert that the worst could be over, especially if Washington and Beijing can reach a trade accord and central banks can keep growth going with a fresh round of interest rate cuts. Any drop in the pace of boardroom changes could be seen as a sign of gathering optimism about the future.

    AJ Bell Investment Director

    Russ Mould’s long experience of the capital markets began in 1991 when he became a Fund Manager at a leading provider of life insurance, pensions and asset management services. In 1993 he joined a prestigious investment bank, working as an Equity Analyst covering the technology sector for 12 years. Russ eventually joined Shares magazine in November 2005 as Technology Correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media, by AJ Bell Group, he was appointed as AJ Bell’s Investment Director in summer 2013.

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