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Resign, Retreat or Retire: Chief Executives React to Recession

Many CEOs follow the way of the match; They burn quickly and disappear.

Many CEOs follow the way of the match: They burn quickly and disappear.

Is it better to burn out or fade away as a CEO?

By the looks of the numbers, burning out appears to be the trend of this economy, says a recent report from outplacement firm Challenger, Grey & Christmas. While tracking CEO departures doesn’t necessarily tell us much in and of itself, it does offer a glimpse at how upper-level management is handling business and, perhaps more significantly, how business is handling them. From the C,G, & E release:

The 126 July departures marked a 20 percent increase from the 105 CEO changes recorded in June. Last month’s total was virtually unchanged from July 2008, when 124 CEOs announced they were leaving their companies. A total of 733 chief executives have left their posts this year, down 14 percent from 848 CEO changes announced during the same period a year ago.

Health care continues to lead all sectors with 121 departures. The government/ non-profit sector followed with 89, as funding for public services dries up. The technology industry – computer, telecommunications, electronics and e-commerce combined – has seen 129 CEO changes this year.

Resignation was the leading cause of July CEO departures, as 35 left their posts for this reason. Another 30 retired and 28 stepped down from their posts, usually staying on as the chairman or board member.

Chew on this: Two thousand eight was the worst year for CEO turnover, as 1,484  left or were asked to leave their posts. While 2009 is slightly better than 2008 (with 733 so far), it can’t be good to have these numbers anywhere near 2008 debacle.

Why so much chief executive turnover?

One reason may be the reluctance to change and adapt strategy in an economic crisis, according to a Fortune article from late January 2009. The article accurately predicted that 2009 will see similar CEO turnover. From that article:

Just look at an incredible tidbit from the latest in a series on the economy from consulting firm BCG, entitled Collateral Damage. In a study in early December 2008 of about 60 major companies worldwide — long after the creation of TARP and the clear collapse in consumer confidence, mind you — more than half of the companies had not made any significant changes to their strategic plans. On average, they were assuming no more than a 5% reduction in volume in a year that was already shaping up to be disastrous. “What is striking,” the report reads, “is that, outside of the construction and auto industries, many companies are assuming that the crisis will have a very modest impact in 2009.”

Say what? It’s hard to believe that chief executives were still whistling their way to work in December 2008. What seems much more likely is that they simply didn’t know what to do — so did nothing at all. Taking risks, it appears, has gone from the measure of a chief executive’s success to a dirty word, just as it becomes clear that standing still is the worst thing to do. Sydney Finkelstein, professor of Management at Dartmouth’s Tuck School of Business and co-author of the new book “Think Again: Why Good Leaders Make Bad Decisions and How to Keep it From Happening to You” (Harvard Business Press), says that the executives he works with are falling into two different categories. “Some are saying they can’t believe this has happened to me; it’s one part denial and another part whining. Others are just facing up to the reality that this is going on and we have to do something about it. The difference in leadership is dramatic.”

It’s hard to navigate a company, especially for those who have to support quarterly earnings, stockholders and employees. While the economy is showing some signs of life, many economists still predict that we have a long way to go to showing growth. The questions is, will your CEO be around to see it through?

More executive career advice:

[Image by millicent bystander via Flickr CC 2.0]

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