U.S. companies are hiring new chief executive officers this year at the quickest pace since 2005 as directors seek growth after putting off management changes while riding out the recession.
Turnover is running at a 13 percent rate this year after a 15-year low of 10 percent in 2010, according to a study of 669 large companies by Hinsdale, Illinois-based search firm Crist|Kolder Associates. The firm tracked moves through July at companies from the Fortune 500 and Standard & Poor’s 500.
From Costco Wholesale Corp. grooming a new chief to utility PG&E Corp. picking its first outsider ever, directors are now more willing to shift leaders, said Gail Meneley, founding principal at executive recruiter Shields Meneley Partners in Chicago. Boards want CEOs to tap cash hoards that reached $2.76 trillion at S&P 500 companies last quarter, she said.
“Over the last 30 months, there’s been a huge focus on operating efficiency, downsizing, streamlining and cost reduction,” Meneley said in an interview. “Now they’re looking for people to drive growth, revenue and innovation.”
Wendy’s Co. joined the roster of CEO transitions today, appointing Emil J. Brolick, 63, to take over at the operator of more than 6,500 fast-food restaurants on Sept. 12 from Roland Smith, 57. Brolick is chief operating officer of Yum! Brands Inc., which owns the Taco Bell, KFC and Pizza Hut chains.
“Companies are pretty confident with the way things are going,” said Matt McGreal, chief of Crist|Kolder’s corporate governance practice. “So now they’re open to making these changes despite the recent rockiness of the market.”
Two S&P 500 companies announced moves yesterday: Costco, the largest U.S. wholesale-club chain, named a successor for its 75-year-old CEO, Jim Sinegal, at year’s end, while Bank of New York Mellon Corp. said its chief left due to “differences with the board” over how to manage the company.
The C-suite churn includes CEOs as high profile as Apple Inc.’s Steve Jobs, who took a medical leave in January as he battled cancer, then announced he was resigning on Aug. 24.
Jobs, 56, left after building the start-up he founded in 1976 into the world’s largest technology company and a rival to Exxon Mobil Corp. as the biggest by market value. He rejoined Cupertino, California-based Apple in 1997 after being ousted 12 years earlier and presided over a 9,000 percent stock gain.
Historically, CEO turnover runs counter to business cycles, said Peter Thies, senior partner at Los Angeles-based executive search firm Korn/Ferry International. Companies tend to hang on to leaders when the economy sours and seek new blood during an expansion as excuses vanish for slow growth, he said.
“We are being put on more and more CEO searches,” Thies said in an interview. “That activity is heating up.”
Pent-up demand for leadership changes is enough to extend the pattern through year’s end even as the economy slows, Thies said. Gross domestic product expanded at a 1 percent annual rate last quarter and 0.4 percent in the first quarter, down from 2.3 percent in the last three months of 2010.
CEO turnover last year was the lowest since 1995, according to Crist|Kolder. A 13 percent rate for all of 2011 would be the highest since 16 percent in 2005, Crist|Kolder said.
Liberum Research also sees a rebound in hiring this year. There were 927 CEO changes in the first half, compared with 1,335 for all of 2010, according to New York-based Liberum, which tracks all companies that disclose the moves, most of which are in the U.S. Last quarter’s 581 changes were the most since the first three months of 2008.
Some of the hiring this year stems from corporate crises that force a board’s hand.
PG&E hired DTE Energy Co.’s Anthony Earley, 62, last month after CEO Peter A. Darbee, 58, resigned in April. Earley will be the first outsider to run the 106-year-old San Francisco-based utility and arrives amid regulatory reviews and a criminal probe into a 2010 pipeline blast that killed eight people.
BNY Mellon handed the reins to President Gerald L. Hassell as Robert P. Kelly departed the world’s largest custody bank. New York-based BNY Mellon didn’t specify the differences that led to Kelly’s exit, and a spokesman, Jeep Bryant, declined to comment.
Like Apple, technology bellwethers Advanced Micro Devices Inc., Hewlett-Packard Co. and Google Inc. have all brought in new leaders in the past year. In May, hedge fund manager David Einhorn called on Microsoft Corp. to replace CEO Steve Ballmer.
Directors can face criticism over CEOs’ performance for reasons other than profits and stock returns.
Salary and other compensation for 25 of the best-paid CEOs last year exceeded the U.S. income-tax expenses their companies disclosed in public filings, the Washington-based nonprofit group Institute for Policy Studies said in a report yesterday. “Businesses and CEOs shouldn’t be rewarded for so aggressively avoiding their responsibility to pay taxes,” said Chuck Collins, one of the authors.
Almost half of companies use the COO position as a training ground for becoming CEO, Crist|Kolder’s McGreal said.
Costco went that route in February 2010 by naming Craig Jelinek as president and COO of the Issaquah, Washington-based company. Jelinek “worked hand in hand” with Sinegal over the last 18 months, Costco said yesterday.
At 3M Corp., where CEO George Buckley’s contract ends on his 65th birthday, in 2012, Inge Thulin, 57, was appointed in May as COO, a new position. While St. Paul, Minnesota-based 3M declined again yesterday to discuss succession, McGreal said Thulin was the company’s choice.
“They’ve made their selection,” McGreal said. “Everybody believes they are using that as a succession tool to give him some additional exposure to the entire company.”
Companies can lose top talent if they wait too long to promote, McGreal said. New Apple CEO Tim Cook, 50, caught the eye of several companies as he managed day-to-day affairs as COO, McGreal said.
“A lot of other companies wanted him so it was probably a good thing that they locked him up,” McGreal said. “He was probably the biggest fish out there in terms of companies trying to get him to be their CEO.”
Apple’s executive suite already had been raided this year. Department-store operator J.C. Penney Co. lured Ron Johnson, who created the retail empire at the computer-and-phone maker, to succeed CEO Myron Ullman, 64, on Nov. 1.
While Ullman boosted sales at Plano, Texas-based J.C. Penney by 1.2 percent in 2010 after three annual declines, Johnson arrives from a company whose revenue soared 52 percent in its last fiscal year. “It’s our job to rethink everything,” Johnson said after being named to the post in June.
That’s the kind of approach that appeals to directors making a leadership change as their focus shifts to growth from mere survival in a recession, Meneley said.
“Remaining the same is no longer an option,” Meneley said. “There’s too much risk being in neutral.”
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