After providing steady hands through much of the pandemic, longtime CEOs are now boxing up their corner office, making room for new leaders to navigate an uncertain future. Turnover among chief executives, already on the rise, hit a five-year high last year, according to a Russell Reynolds Associates analysis of 1,560 companies.
The leadership advisory firm's latest index of CEO turnover found that 175 CEOs left their posts in 2022, a 30% increase compared with 2021 and up 13% compared with the next highest year, 2018. The index looked at more than 1,500 companies listed on the world's leading stock indices, like the S&P 500, Nikkei 225, FTSE 350, and Euronext 100. The analysis did not take into account interim, acting, or designated CEOs.
The S&P 500 saw 61 CEO exits in 2022 vs. 44 in 2021, a 39% increase year-over-year.
A number of factors influenced the recent CEO turnover, and many are ripple effects of a pandemic that accelerated and sparked far-reaching changes in business. Many CEOs hunkered down when two-week pandemic lockdowns turned to two years and stayed to help shepherd their companies through the unknown, Constantine Alexandrakis, CEO of Russell Reynolds Associates, tells Fortune.
"Now that this phase has passed, they are ready to finally depart," he says. "Second, economic uncertainty combined with a much faster rate of change in the business environment is causing companies to desire new approaches, new innovations, and new strategies to compete more vigorously."
The energy and utilities industry had the largest turnover rate on the S&P 500, with 13 CEOs leaving their companies, up 225% compared with 2021. Alexandrakis credits a lack of familiarity with new green energy and circular economy initiatives as the reason for increased turnover in the sector.
The consumer sector experienced the second-most departures, with 10 CEOs leaving in 2022, a 150% increase over the prior year.
On paper, the role of a CEO has remained the same: deliver high total stakeholder return from shareholders to employees. But CEO success looks different post-pandemic as companies grapple with increased demand for work flexibility, social justice initiatives, and sustainability efforts, among other things. That’s all while navigating the economic downturn.
"Done well, CEO turnover presents an opportunity for companies to streamline processes and align their leadership teams to the desired culture and priorities," Alexandrakis says.
There's also a limited supply of CEOs with the requisite skills to effectively lead today’s companies, as evidenced by the corner office gaps in retail."Never before have businesses operated in such a complex and rapidly changing environment, and that increases the pressure on CEOs," Alexandrakis says.
Turnover rates in 2023 are expected to remain above 2020 and 2021 levels, according to Russell Reynolds Associates. A separate analysis from executive outplacement and coaching firm Challenger, Gray & Christmas found that as many as 418 CEOs left their jobs in the first quarter of 2023, up 6% compared with the first quarter of 2022.
Whether it's ultimately the CEO’s or the organization’s decision to part ways, Alexandrakis says the biggest takeaway for companies is to "prepare, prepare, prepare."
"Boards need to plan and prepare for potential CEO turnover with a robust succession plan,” he says. “This process should begin as soon as the first day of a current CEO’s tenure."
