Think twice before forcing change at the top of a company
Always be ready for the day when the person running the business, the figurehead and the person everyone looks up to, is told they are no longer welcome at the boardroom table
Every company, and every person running it, at times thinks the good times will go on forever, and yet every now and again comes an issue so serious, heads have to roll, often meaning a change of at the top.
And yet anyone with a stake in a company realises that while firing the CEO can be the right call, it can be enormously costly.
When a CEO turnover is forced – that is, not part of a planned succession or the result of merger and acquisition – the cost is especially high, and it is hugely important to get the CEO succession process right.
Starting with the cost, the latest research suggests that there is a dramatic drop in total shareholder return for large companies that had experienced forced turnovers in CEO.
PwC has examined CEO turnover rates, as well as incoming and outgoing CEOs, at the world’s 2,500 largest public companies, and estimates it results in a combined US$112 billion in value, which works out to US$1.8 billion per company, more than would have been lost if those successions had been planned.
With this in mind, it is certainly worth questioning carefully if it is really necessary to fire the CEO at all?