Executive Failure

 
While the relative share of executive, administrative and managerial workers has remained quite stable over the last decade and is expected to stay so for the next one (Monthly Labor Review, 1999), most reports suggest that the rate of executive turnover is increasing sharply.  This trend has been called "CEO churning".  The following evidence should be considered:
  • According to the survey by the human resources consultant Drake Beam Morin, more than two thirds of major companies worldwide replaced their CEO's between 1995 and 2000 and about half of all CEO's held their jobs for less than three years (The Wall Street Journal, January 2001)
  • The volume of departures at the chief executive level has increased dramatically in recent years.  According to the outplacement from Challenger, Gray & Christmas, chief executive departures increased by almost 22% in the first half of the year 2001 as compared to the same period a year ago.
  • The average failure rate in the first year for recruited executives is between 40% and 50% (e.g., David Lord [Executive Search Information Exchange], NEERC, May 2001)
  • On average, the cost of a failed executive varies widely but is often more than $500,000 or 2.5 times salary, not including organizational, opportunity, productivity, and transitional costs for the new executive ( Mercer et al, 1999).

 
The reasons for failure are numerous but often include a mismatch between the candidate and the organizational culture, team, board or goals.  CAG's executive assessment services provide due diligence to help ensure that the right executive is matched to the right situation.  When the hiring company has followed CAG's suggestions, the success rate has been over 85%, whereas in case of significant concerns about the candidate, the failure rate has been close to 100%. 

 
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