Slowing the Revolving Door

PUBLISHED OCTOBER, 2024

A factoid worth noting from the global executive outplacement firm Challenger, Gray & Christmas: Through July of this year, 1,250 CEOs in the U.S. had announced their departures—the highest year-to-date total on record. That broke a record just a year old: The firm said that figure was up 13 percent from 1,104 exits that occurred during the first seven months of 2023, its previous high-water mark.

Why? “Companies have made leadership changes in response to AI, the political landscape, and international events causing substantial impacts on business conditions,” said Andrew Challenger, the firm’s senior vice president.

It’s a fact of corporate life that when a CEO exits, the person tabbed to fill that seat will assemble his or her own team. That invariably means turnover in the rest of the leadership ranks, but not in every case. Some of those in other C-suite roles have longstanding histories with those companies and insights that can’t be readily replaced. 

The key to ensuring a steady hand on the wheel, say executives in the talent head-hunting world, is having a plan that ties the interests of your leaders to the organization long before change prevents itself. But even for companies that have had the foresight to create programs aimed at high-potential emerging leaders, the playbook must be rewritten to reflect the new realities of a post-pandemic world.

COVID-19, it seems, is still with us, at least in terms of how it has reshaped the C-suite and the way potential hires or in-house candidates view flexibility to work outside traditional office settings.

“Leaders now face the need to develop high-potential training that aligns with employee expectations to prevent them from looking for advancement elsewhere,” the council said in recommending an updated game plan to reduce attrition rates.

Beyond pandemic effects, a paradigm shift in priorities and job satisfaction is evident, according to the executive search firm Novo. Citing a report from Deloitte, Novo noted that mental health and well-being are now more important than salary to 81 percent of executives and that 70 percent were seriously considering switching companies for better well-being support. “Individuals,” the firm said, “are realizing that they shouldn’t have to tolerate bad conditions for a title and paycheck.”

In many ways, the council’s recommendations align with longstanding best practices in executive development programs: be intentional with discussions about future roles, combine formal training with assignments that stretch capabilities and new skills to employee tool kits, personalize working conditions for time, place and load, and provide ample incentives to reward strong performance.

The last, though, should be modified to find out what matters most to potential leadership candidates and reward them accordingly. Part of that is linked to company culture: With an estimated 3 percent of top performers resigning every year, says HR analyst Laci Loew, “Employers need to stop counting on programmatic solutions as the turnover antidote and focus on building an irresistible culture that prioritizes employee well-being, flexible work arrangements, alignment between corporate and employee values, leadership trust, transparent communication and equitable pay.”

And if you’re using a standard playbook to develop talent, you’re missing opportunities to build connections, other execs say. The plan you have to groom a chief financial officer might not work for your next chief information officer. Personalization is a must. Long-term success follows when the areas of development desired by employees are aligned with corporate goals. Grooming someone for a particular role they don’t see as their true calling might only be preparing them to look elsewhere.

Diversity Concerns

A surprising post-pandemic trend that has caught many organizations off-guard has been the increasing number of women who are checking out of leadership roles, the Challenger mid-summer report noted. 

“Leaders of companies are becoming increasingly male after reaching a point where nearly 30 percent of new CEOs were women in 2022 and 2023,” Challenger said. The rate of new CEOs who are women fell from 28.1 percent to 27.9 percent in July alone, and the overall figure has dropped from the 29 percent mark for women in the same period of 2023.

“It’s interesting that as the nation considers electing a woman for president, fewer women are ascending to the CEO role,” he said. “Many women were tapped to lead during the tumultuous pandemic years but burned out due to lack of support in these roles,” said Challenger.

One factor driving that number for women is that government and non-profit organizations—which tend to have higher numbers of women in leadership roles—have shed the highest numbers of chief executives. Those sectors accounted for 282 CEO exits in July, and 28 of them were in non-profits. The tech sector, which has labored mightily to raise the numbers of women in leadership roles, was No. 2 for departures; the 133 exits represented a 19 percent surge over the previous year.

Not all of those, however, are voluntary moves. The tech sector has been absolutely crushed by layoffs this past year. Shedding 200,000 jobs overall will invariably mean losses of established leaders, as well, and it’s even worse if you go back another year: Since January 2023, Challenger’s firm says the tech sector has shed 233,895 positions.

Other announced CEO losses, by sector, included 123 exits in health-care and related products, up 35 percent from 2023, and entertainment/leisure, where 81 exits yielded a 40 percent increase.

Breaking the trend was the hospital sector, where 68 exits this year were down significantly from the 100 in the first seven months of 2023.

For the broader community affected by the loss of executive talent in the corporate setting, the impact can often be doubled: These roles tend to have a far higher association with civic and philanthropic causes, and boards of those companies are often compelled to find new leadership, as well. 

Of the 1,250 CEO exits this year, more than one-fourth were lost to advisory or board roles in their communities. 

Also of note: the average tenure of CEOs stepping down—13.3 years—is going up; the figure for June was the highest in six years. That, too, has implications for knowledge transfer within the leadership ranks, Challenger said: “Veteran leaders might be stepping aside in favor of those with greater expertise in navigating the rapid technological advancements on the horizon.”