CEO turnover is a key part of this economic expansion: Morning Brief

Myles Udland

·Head of News

Thu, Feb 13, 2020, 3:39 AM5 min read

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Thursday, February 13, 2020

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Companies need growth more than cuts

CEO turnover hit a record in January.

According to data published Wednesday from staffing firm Challenger, Gray & Christmas, 219 chief executives left their posts in the first month of 2020, exceeding the previous monthly record by 27%.

The prior monthly record had been set in October 2019 when 172 chief executives left their roles. For the full-year 2019, a record number of CEOs left their jobs as the final tally came in at 1,640 departures, according to Challenger, Gray data.

As Yahoo Finance’s Erin Fuchs detailed in December, a number of the most high-profile CEO departures were related to ethical lapses at major public companies, including Under Armour (UAA), McDonald’s (MCD), Nike (NKE), and Boeing (BA). Shareholder activism is also a factor cited by experts as increasing turnover trends in the C-suite.

But as the economic cycle matures, the needs companies have for their top executive also changes.

Late last year, we highlighted data that showed the age of the average Fortune 500 had risen by 14 years over the last 12 years. Essentially, the pool of potential executives remained static.

And why wouldn’t it? In the post-crisis economic world companies needed to steady the ship and survive as much as thrive.

As this current economic cycle has matured into a new phase, however, new chief executives are being called on in a new era of corporate citizenship.

Rear view of two business people walking outdoors and talking next to an office building after a successful business meeting. Senior business professionals walking together on a sunny day.

All the way back in the fall of 2018, strategist Brian Belski was on this trend, noting at the time that tenures for CEOs had hit a 15-year high in 2017 as the average age of CEOs had surged above the historical average.

And his analysis pointed towards the dynamics we’re seeing play out today.

“New leadership was brought in 10 years ago for a very specific task: to cut (preserve and protect),” Belski wrote.

“As such, those skill sets are very defined (e.g., more operations-minded). We believe the environment is very different now. As such, there is a high likelihood that a new cycle of CEOs in America will result over the next few years that will have skills sets that encompass more growth traits (on-shoring, capex, M&A). As a result, we believe the days of ‘under promise, over deliver’ earnings reports are likely to segue into growth and business expansion again.”

In a report last month, analysts at executive staffing firm Korn Ferry said they were seeing a “surge in the number of first-time public company CEOs coming onboard.”

“This is creating an environment where the average age of the role is decreasing,” said Korn Ferry vice chairman Tierney Remick. “We anticipate this will have some impact on the composition of both the executive team as well as the Board.”

Younger executives, newer executives, and more changes in executives all point towards us reaching an inflection point in the economic cycle. A point at which the needs and desires of both boards and investors are moving away from an almost decade-long post-crisis stance and towards a new outlook on growth in the 2020s.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today

Economy

8:30 a.m. ET: CPI month-on-month, January (0.2% expected, 0.2% in December); CPI excluding Food & Energy, January (0.2% expected, 0.1% in December); CPI year-on-year, January (2.5% expected, 2.3% in December)
8:30 a.m. ET: Initial Jobless Claims, week ended Feb. 8 (210,000 expected, 202,000 prior); Continuing Claims, week ended Feb. 1 (1.748 million expected, 1.751 million prior)
9:45 a.m. ET: Bloomberg Consumer Confidence, week ended Feb. 9 (66.5 prior)

Earnings

Pre-market

6 a.m. ET: PepsiCo (PEP) reported $1.45 per share and $20.6 billion in revenue, beating expectations of adjusted earnings of $1.44 per share on $20.25 billion in revenue
7:35 a.m. ET: Kraft-Heinz (KHC) is expected to report adjusted earnings of 68 cents per share on $6.61 billion in revenue
Other notable reports: YETI (YETI)

Post-market

4 p.m. ET: Roku (ROKU) is expected to report an adjusted loss of 14 cents per share on $391.71 million in revenue
4:20 p.m. ET: Nvidia (NVDA) is expected to report adjusted earnings of $1.66 per share on $2.96 billion in revenue
Other notable reports: Expedia (EXPE), Mattel (MAT)

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