In a year (2024) in which companies in the S&P 500 Index averaged earnings growth of 9.4%, you’d think that CEOs would be raking it in! And while final numbers are not yet published, in 2023, the nation’s company execs saw their income grow by 23%, and although 2024 income growth is expected to rise at a slower pace, I’m not worrying about how those folks are putting food on their tables.
But what’s going on? Through November, outplacement firm Challenger, Gray & Christmas reported that 327 top bosses had left their jobs—8.6% higher than in 2023 and more than any other year since 2010 (when they first started tracking this stat).
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Here are some of the most well-known companies who lost their CEOs last year:
· Boeing—need I say more?
· Nike (sluggish growth)
· Starbucks (declining sales in its largest markets)
· Intel (falling behind on A.I.)
· Peloton (revolving door in the C suite, due mostly to crazy COVID growth retreating to a slower pace when the work-at-home employees were called back to the office)
· Kohl’s (dropping same-store sales for 11 quarters in a row)
· WW International (blame it on the easier-to-lose weight drugs like Wegovy. However, Weight Watchers has not jumped on that trend, combining it with its diet/exercise regimens)
· Stellantis (falling sales and lowered guidance)
Activist shareholders, boards of directors, and hedge funds don’t have much patience anymore, so CEOs are getting the boot faster than ever—especially for those who haven’t seen their stocks rise as the market grows ever stronger.
What These Exits Mean for Shareholders
The answer: It depends.
If they were fired or resigned due to what the board of directors considered poor performance, it’s possible that a turnaround may soon be in progress. And that could be good (eventually) for the stock.
If the separation was due to a scandal—such as the ones outlined below—that’s a different story.
Les Moonves, CBS: Multiple sexual allegations
Steve Wynn, Wynn Resorts: See above
Pat Gelsinger, Intel: Ethical violations
Thomas Borgen, Danske Bank: Money laundering
Martin Winterkorn, Volkswagen: Cheating on diesel emissions tests
In those kinds of cases, chaos usually reigns following the scandal, sending their shares down, so most shareholders should probably bail—at least until the dust settles.
When Shareholders Should Stay Put
You should know that almost any CEO change is likely to make the stock more volatile—at least in the short term. And if the company doesn’t immediately replace the CEO, I’d opt out.
However, if the company is quick to hire a CEO that shareholders hold in high esteem—such as a person with a great track record in turnarounds, many years of expertise as a CEO, or at least a successful history in management positions in similar industries—that may be a great sign of future upward momentum in the share price. But know that the shares will probably decline at first, and then bounce back if the CEO demonstrates competency.
The graph below sheds a bit of light on stock performance and CEO departures:
Source: Insigniam
Over time, in a well-run company with a competent CEO and board of directors, you can expect intermittent volatility during CEO turnover, but in the long run, the shares should continue to rise.
But if the circumstances regarding the CEO departure are murky or negative, I’d recommend that you sell your shares and invest those monies into a stock with a more attractive future.
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