There are others with less stellar records that might start to feel the heat. IBM (IBM) has earned
investors almost nothing over the past five years, while the Dow Jones Industrial Average is up
about 12% a year on average over the same span. CEO Ginni Rometty made a big bet on the cloud,
buying Red Hat in 2018 for more than $30 billion. If deal synergies don’t emerge soon, the
temperature in the board room could rise.
Ginni's ouster should've happened years ago. A bonfire under her keister at this point can't happen soon enough.
https://www.barrons.com/articles/heres-who-could-be-next-on-the-ceo-hot-seat-51574449447
Like a baseball team with a tired pitcher on the mound, corporate boards have been going to the bullpen for new CEOs in record numbers. Such a move could change a stock’s trajectory, for better or for worse.
C-suite turnover is on the rise. Just this past week, T-Mobile US (ticker: TMUS) CEO John Legere announced that he would step down, joining a slew of other departing leaders, including Adam Neumann and Kevin Plank. If it feels like there’s a lot of turnover atop publicly traded companies, you’re not wrong. The CEO exodus is at its highest on record, according to outplacement firm Challenger, Gray & Christmas.
Barron’s also identified 108 S&P 500 chief executives who have been replaced over the past two years. Fifty-six S&P 500 CEOs have less than one year on the job. And overall CEO tenure is down compared with a few years ago.
Why are CEOs leaving? Some have no choice. They are “forced” by poor performance, due in part to the high level of disruption in the market today. Retailers face e-commerce threats. Media companies face streaming threats. And alternative meat’s rise has investors asking questions about the strategic playbook of food companies such as Kraft Heinz (KHC). And yes, Kraft has a new CEO.
Poor performance isn’t the only reason for CEO exits. After more than 10 years of a bull market, many chiefs are riding off into the sunset while the going is good. Consider soon-to-be-former Nike (NKE) chief Mark Parker, who announced his departure in late October. He’s led the sports apparel giant for about 14 years. During his tenure, the stock has returned about 19% a year on average, better than the 13% return of the benchmark over the same span.
Of course, there is a third reason CEOs are asked to leave: ignominy. McDonald’s (MCD) former CEO was forced to resign because of a relationship with a subordinate.
CEO changes can be a catalyst for stock appreciation—or depreciation—depending on how the new leader performs. In fact, value-type investors often look at management change as potential opportunity. Some significant investors, for instance, bought General Electric (GE) stock because of CEO Larry Culp. Of course, a new CEO can have the opposite effect—don’t forget that Culp is GE’s third CEO since October 2017.
Even if a troubled CEO gets replaced, it doesn’t guarantee stock-price outperformance. The academic data is mixed on whether the “forced” kind of CEO change helps or hurts stock prices. For the most part, it seems troubled companies remain troubled companies, even after the board takes action. Value investors, however, don’t care what the papers say. They argue that every situation is unique.
Who’s next? We have some ideas. Two hot—yet volatile—stocks will almost certainly move if their dynamic founders decided it’s time to leave. Reed Hastings has led Netflix (NFLX) successfully for 22 years. With content spending and streaming competition up, investors should ask who’s warming up in the bullpen. Netflix didn’t return a request for comment about succession, but has said in filings that “the board knows how to pick a CEO.”
Tesla (TSLA) founder and CEO Elon Musk has led the electric-vehicle pioneer for 11 years, and the company is now planning the launch of Model Y in 2020 and the release of the Cybertruck at some date in the future. But as competition from the proliferation of EVs rises, investors should also ask if a traditional car executive could help smooth product rollouts while Musk moves on to a more chairman-oriented role, focused on Tesla’s mobility, charging, and storage initiatives. (In a February 2019 earnings call, Musk said that there wasn’t even a “passive search” on for a new CEO.)
That pair, while controversial, have generated long-term gains for shareholders. There are others with less stellar records that might start to feel the heat. IBM (IBM) has earned investors almost nothing over the past five years, while the Dow Jones Industrial Average is up about 12% a year on average over the same span. CEO Ginni Rometty made a big bet on the cloud, buying Red Hat in 2018 for more than $30 billion. If deal synergies don’t emerge soon, the temperature in the board room could rise.
And maybe its stock will too.