Surge in CEO Turnover: Reasons Behind Corporate Shakeups

CEO turnover is skyrocketing as leaders exit before being forced out amid stagnant growth and rising investor expectations.

### The Great CEO Purge: Understanding the Surge in Executive Turnover
* 📉  In the last six months, numerous high-profile CEOs from major companies like Nestle, Boeing, and Starbucks have stepped down, raising questions about the **causes behind this significant turnover**.
* 🔄  CEO turnover is currently at its **highest since the pandemic began**, with many leaders choosing to **leave voluntarily** amid a backdrop of layoffs across various industries.
* 📊  The average age of a Fortune 500 CEO is **57**, and with an average compensation package of **$16.3 million**, many may opt for retirement rather than facing **increased pressure from shareholders and activist investors**.
* 💔  The current economic climate has led to **stagnant stock performance** for many companies, prompting boards to seek new leadership that can **cut costs and improve financial results**, as seen with Starbucks' new CEO, Brian Nickel.
* 📈  Activist investors are actively pushing for changes in underperforming companies, leading many CEOs to **resign preemptively** to avoid being ousted in a **challenging market environment**.
* 💰  The trend of hiring "**turnaround CEOs**" who are expected to **implement cost-cutting measures quickly** has further contributed to the rise in CEO turnover, as these leaders often have **short tenures focused on immediate results**.
* 🏖️  Finally, the pandemic has prompted many older CEOs to reassess their careers, with **retirement being a common reason for resignations**, reflecting a shift in corporate culture that prioritizes a **more dynamic and tech-savvy leadership**.
* 📧  For those interested in exploring these trends further, a newsletter is available that delves into the **evolving landscape of corporate leadership** and the implications for **future executives**.

within the last 6 months, the CEOs of Nestle, Boeing, Starbucks, Peloton, Paramount, Zillow, Amazon Web Services, Snowflake, HSBC, Grayscale, Under Armour, Papa John's, and Discover have all stepped down, voluntary or otherwise, from the top job. Collectively, these CEOs controlled companies with trillions of dollars in annual revenue, and now they are all gone. These were just the big names too. CEO turnover in companies of all sizes is now higher than it has been since the start of the pandemic, which begs the question: why is this happening, and why is it happening now? The CEO is going off to two years, another headcount reduction. YouTube Chief Susan Wojcicki is stepping down. She announced so in a blog post, and Starbucks's CEO, Howard Schultz, is now stepping down as CEO and director. That is effective immediately. The company has named Chipotle CEO. Chief Executives and other Street executives are just employees like any other, which means eventually they either quit, get fired, or die in their job. CEO layoffs have spiked, but maybe that's

not too surprising, considering layoffs in a lot of industries have also spiked. But this is actually not normally how it goes. If you ever find yourself in the top job at a major company, you should know that your position is simultaneously far more secure and far more fickle than the average rank-and-file employee working under you. As a CEO, your position is unique because there is no other employee at the company with the authority to fire you. The only people that can do that are the board of directors, who themselves are representatives of the shareholders. During periods of uncertainty, the last thing that companies want to do is switch up senior leadership unexpectedly because that signals to the market that something is not right, which could tank the stock price. Since the board of directors represents shareholders, and individual directors usually are major shareholders themselves, they have an incentive to avoid doing anything that could hurt the stock price unnecessarily. For this reason, CEOs are rarely fired outright and are instead offered generous exit packages to step down amicably in a way that won't scare

investors in the business outside of high-profile cases where the business has clearly been mismanaged or in cases where the CEO has made very unpopular decisions. It can be hard to tell if outgoing CEOs have been pushed out or are simply retiring. According to Fortune Magazine itself, the average age of a Fortune 500 CEO is 57 years old, and the average compensation package was $16.3 million. If you are that old and have that much money, it's not unthinkable that you would want to retire or pursue less intense roles more suited to your old age, like political office. But if CEO exits are treated so seriously and secretively, why has there been such a big spike all of the sudden? Well, the first reason is that right now is a convenient time for a shakeup. Companies in their leadership don't always have completely aligned incentives. A CEO wants to make as much money as possible while in the role, and the business wants to maximize returns to its shareholders. While these incentives can be aligned

through bonus packages tied to stock performance. This has made a lot of company leaders leers hyperfixated on quarterly financials and the stock price on the day their bonus is calculated. Stocks in most large public companies have actually been trading relatively flat. Total stock market performance has been massively bolstered by Microsoft, Google's parent company Alphabet, Nvidia, and Apple to a lesser extent. Most other public companies have been trading relatively flat, which isn't a problem during uncertain times like the pandemic and its recovery. But investors are now starting to expect more out of their businesses and specifically their CEOs during a drawn-out period of slow growth. Former CEO of Starbucks, Luxman Nissan, was pushed out after spending just over a year in the top job. While he officially stepped down, it was clear that the company performance was bad and he was forced out by the board after sluggish earnings reports were released. He was replaced by Brian Nickel, the CEO of Chipotle, a brand which by comparison has been doing extremely well. This one move replaced the CEOs of two companies.

and the decision was largely pushed through by activist investors like Elliot management, who, according to C NBC, purchased a large stake in the company in mid-July. This firm and others like it buy up large stakes in companies that are not doing too well and try to enact changes to turn the company around. This can be as simple as suggestions like offering new products, but it's usually more focused on cutting unnecessary expenses and shaking up leadership to generate the highest possible return in the shortest possible time. This particular type of investing strategy is extremely attractive in stagnant markets, where it's harder to generate strong returns by just buying something and passively waiting for it to be worth more. This has already worked for Elliot management. After the announcement of the new CEO, the company stock jumped by a massive 24%, fully recovering its losses from its poor earnings report. If the investment firm cashed out on their position now, they would have already outperformed expected annual returns in a little over a month. Starbucks is a high-profile example, but activist

investors across the country and the rest of the world are looking for similar opportunities. So many CEOs in stagnant companies are taking it upon themselves to out before they are forced out. Now, if you are not a CEO, you might not be too worried about the games that the company directors play with Finance Bros and their appointed CEOs, but it's time to learn how money works to find out why the great CEO purge is likely to impact you more than it is the people in the C-suite. This week's video is sponsored by Brilliant. I've been wanting to improve my problem-solving skills, and Brilliant has been the perfect platform to help me achieve that. Brilliant is where you learn by doing, with thousands of interactive lessons in math, data analysis, programming, and AI. Brilliant is designed to be uniquely effective. Their first principles approach helps you build understandings from the ground up. Each lesson is filled with hands-on problem-solving that lets you play with concepts, a method proven to be six times more effective than watching video.

lectures plus all content on brilliant is crafted by an award-winning team of teachers, researchers, and professionals from MIT, Caltech, Duke, Microsoft, Google, and more. With brilliant, you're not just memorizing facts; you're developing critical thinking skills that make you a better thinker. It's a platform that helps you build real knowledge through problem-solving. Recently, I've been exploring brilliant's new data content, which uses real-world data to train you to see trends and make better-informed decisions. From Bayes' theorem to multilinear regression, these courses are perfect for learners at any level. To try everything brilliant has to offer for free for a full 30 days, visit brilliant.org/howmoneyworks or click the link in the description, and you'll also get 20% off your annual premium subscription. The CEOs that did well during a stable up market are not the same kind of CEOs that businesses are going to want when sales are flat. If businesses can't grow revenue, the only option they have left to increase their profit is to cut their

expenses. Of course, they could be happy with consistent, predictable returns, but let's be real, that just makes them an even bigger target for activist investors looking for their next company to turn around. Now, this isn't always bad. Established companies often do pick up a lot of dead weight over the years, from underperforming product lines to bloated middle management. It's normally much easier to add something to the business than it is to take it away. Activist investors may be a nightmare for existing CEOs, but they can genuinely help to save businesses that are collapsing under their own weight by putting a subjective set of eyes on the business and its operations. The only problem, if a new CEO is hired with the objective to cut costs, they are going to cut costs no matter what. And that's the second reason behind the current CEO purge. Brian Nickel, the new CEO of Starbucks, made investors so excited that the stock jumped 23% upon his announcement. He is clearly a competent company leader before a service says Starbucks is paying him.

$130 million in his first-year loan according to Yahoo finance and Company filings. If the name of the game was to cut down on expenses wherever possible, that is an interesting place to start. The real reason that investors are so excited about this new CEO is that he also isn't meant to be in the top job for long. Nick has a long history of being extremely heavy-handed with cost-cutting measures, which have admittedly included streamlining the operations of Chipotle in his last job, but it also coming down hard on employee benefits, cutting down on Staffing, closing underperforming stores, and pushing back hard against unionization efforts from staff trying to collectively push back against these Cuts. Starbucks is currently dealing with its own unionization efforts, and the part of this new CEO's job that the company won't talk about in their press release is to shut this down like he did at Chipotle. The company isn't expecting to pay him hundreds of millions of dollars for more than a few years; they are just hoping to pay him long enough to fix

their problems before he moves on to another company that will pay a huge signing bonus, and then Starbucks can replace him with a longer-term CEO that is only paid a modest salary measured in the mere tens of millions. These people are unofficially called turnaround CEOs because their job is to turn a company around and then get out as quickly as possible, and their bonus structures are normally written to pay them a lot of money for quick results. Of course, the company will never publicly admit this plan, so that prediction is based off my experience with other companies employing turnaround management. Although if for some reason you are watching this video 5 years after it's posted and Nickel is still the top dog at Starbucks, feel free to leave a comment telling me how stupid I am. Anyway, these short-term CEOs inherently increase turnover rates as they jump between companies providing their services, and turnaround CEOs are more popular with investors in markets toine value. Now, the final reason that CEOs are quitting in record numbers is the simplest reason, which is that they really don't need to work.

anymore. The average CEO is older now than they have ever been before, and a lot of them just want to retire. But during the pandemic, their companies tried to hold on to them to maintain corporate stability. According to the corporate law firm Challenger Gray, quarter 1 2024 had the highest number of CEO resignations since they started keeping records. The number one reason that CEOs gave for leaving was to retire. Given how much they were paid during the pandemic and the strong market returns of their investments over that period, the modern CEO is also expected to be more tech-savvy and public-facing, prompting many of the old guard to make an exit before their market teams or ERS them to do a TikTok dance. Now, you might think I am joking, but this new wave of corporate culture has had a serious impact on the C-suite. CEOs may be missing out on some job security, but that's probably not their biggest problem. Companies are shaking up the pool of Chief Financial, Marketing, Operating, and Executive Officers with

Chief enthusiasm officers, chief amazement officers, and chief heart officers. These are real jobs held by real people in real companies. I am going to be writing about this trend over on my completely free email newsletter linked to in the video description. If you want to read that in other articles like it, which will never be made into videos, be sure to sign up. If that still hasn't scared you out of going for the top job, go and watch this video to find out what it really takes to land the top job. And don't forget to like and subscribe to keep on learning how money works.

Why A Record Number of CEOs Are "Resigning"

Subscribe to learn about business, careers, and everything else about How Money Works.

How Money Works

In the last six months, CEOs from major companies like Nestle, Boeing, and Starbucks have stepped down, leading to a significant increase in CEO turnover.

This trend is unusual, as CEO positions are typically secure, with board directors being the only ones with the authority to fire them.

The recent spike in CEO exits is attributed to a convenient time for leadership shakeups, as companies' incentives may not always align.

The Impact of Stock Performance on CEO Turnover

Company leaders are increasingly focused on quarterly financials and stock prices due to bonus packages tied to stock performance.

Activist investors, like Elliot Management, are buying stakes in struggling companies and pushing for leadership changes to generate quick returns.

This strategy has led to a wave of CEO turnovers, with many executives leaving their positions to avoid being forced out, ultimately impacting employees and the broader company culture.

The Impact of Brilliant's Educational Platform and CEO Changes

Brilliant's content is created by a team from top institutions, focusing on developing critical thinking and real-world problem-solving skills.

The platform's new data courses are designed to help learners identify trends and make informed decisions.

The current CEO changes in businesses are driven by the need to cut costs and improve efficiency, with activist investors playing a role in driving these changes.

Starbucks' New CEO and Cost-Cutting Measures

Starbucks' new CEO, Nick, is starting with a $130 million loan and is known for his aggressive cost-cutting strategies.

His track record includes streamlining operations, cutting employee benefits, and opposing unionization efforts.

The company's plan is to pay him handsomely for a short period to fix their problems before transitioning to a long-term CEO with a modest salary.

CEOs are now older and retiring in record numbers, with Q1 2024 seeing the highest resignations since records began.

The pandemic's impact and the need for tech-savvy, public-facing leaders are driving the exit of the old guard.

Companies are also introducing new C-suite roles, such as Chief Enthusiasm Officers and Chief Heart Officers, reflecting a shift in corporate culture.