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 / Third Quarter 2002 / Issue 28(originally published by Booz & Company)


Why CEOs Fall: The Causes and Consequences of Turnover at the Top

In Homer’s Iliad, Achilles is offered the choice between a short, glorious life and a long, unremarkable one. Today’s chief executives face a starker world. They have no choice: They must be remarkable. Otherwise, their professional lives will be short.

Also contributing to this article was Julien Beresford ([email protected]), president of The Beresford Group, a research company based in Westport, Conn.

Reprint No. 02305


This study required the identification of the world’s 2,500 largest public companies based on their market capitalization on January 1. We used market capitalization rather than revenues because of the different ways financial companies recognize and account for revenues. The Compustat/Global Vantage database of public companies provided a ranking of all publicly traded companies on December 31 of 1994, 1997, 1999, and 2000.

To identify the companies among the top 2,500 in each year that had experienced a chief executive succession, we initially used the LexisNexis electronic data files of the Directory of Corporate Affiliations (which we compared for the years before and after the year in question to see whether a change in the CEO had occurred) for CEO changes in the first three time periods (1995, 1998, and 2000). For changes in 2001, we used a file of executive changes provided by idEXEC (a global business-to-business contact database of executive decision makers). We also used a variety of printed and electronic sources, including Corporate Yellow Book and Financial Yellow Book (both published by Leadership Directories, N.Y.); Forbes; Fortune; the Financial Times; the Wall Street Journal; and several Web sites containing information on CEO changes (, and Additionally, we conducted electronic searches of the Dow Jones Interactive (DJI) database in the selected years for any announcements of retirements or new appointments of CEOs, presidents, managing directors, and chairmen; results of this search were compared to the list of the top 2,500 companies. For firms that had been acquired or merged in any of the subject years, we used the Thomson Financial Mergers & Acquisitions database.

Each company that appeared to have experienced a CEO change was then investigated for confirmation that a change had occurred in the relevant year and for identification of the outgoing executive: title(s) upon succession, starting and ending dates of tenure as chief executive, age, and the true reason for the succession event. Company-provided information was acceptable for each of these data elements except the reason for the succession; an outside press report was frequently necessary to learn the true reason for an executive’s departure (because company press releases often obscure the underlying reason for an executive’s departure). We used a variety of online sources to collect this information on each CEO tenure, including company Web sites, the DJI database, Hoover’s Online, Northern Light, and proxy statements available on the U.S. Securities and Exchange Commission’s (SEC’s) EDGAR database (for U.S.-traded securities). In some cases, when the online sources were unproductive, we contacted the individual companies by e-mail and telephone to confirm the tenure information. We enlisted the assistance of Booz Allen Hamilton offices worldwide as part of this effort to contact companies directly.

We then calculated average growth rates (AGRs for total tenure, first half, and second half) for three types of financial and shareholder information for each executive’s tenure: net income, net income as a percentage of book value, and total shareholder return (TSR, including the reinvestment of dividends, if any). For interim CEOs, we also obtained the financial information for the prior periods, if any, that they served as CEO. To enable meaningful cross-industry comparisons, we calculated the same income data information for the relevant industry and region (e.g., automobiles and components in North America, Europe, Asia/Pacific, South America, or Africa) using the S&P/Morgan Stanley Global Industry Classification Standard (GICS). The revenue, net income, and book value data was provided by S&P (Custom Projects); quarterly data was provided for North American–traded securities; and annual data was provided for other firms. TSR and market value data was provided by Datastream. Regionally adjusted AGRs were calculated by subtracting the Morgan Stanley Capital International (MSCI) regional shareholder return indices from the company’s performance during the periods in question.

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  1. Anthony Bianco and Louis Lavelle, “The CEO Trap,” Business Week, December 11, 2000; Click here.
  2. Jay Dahya, John McConnell, and N.G. Travlos, “The Cadbury Committee, Corporate Performance, and Top Management Turnover,” Journal of Finance, February 2002
  3. Pamela Mendels, “The Real Cost of Firing a CEO,” Chief Executive, April 2002; Click here.
  4. Jay Dahya and John McConnell, Outside Directors and Corporate Board Decisions, Krannert School of Management, Purdue University, Working Paper, April 15, 2002
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