Andrew Challenger, Challenger, Gray & Christmas SVP, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss the spike in turnover of CEOs across all major sectors in the month of July.
BRIAN SOZZI: All right, it's been a tough year for a lot of CEOs. With all the pressure from the economic slowdown and the pandemic, it's no wonder a lot of companies are making changes at the top this year. In fact, a brand new report from the outplacement firm, Challenger, Gray, and Christmas, finds CEO turnover shot up 37% last month from the month before. Here to talk about it is Andrew Challenger, senior vice president at Challenger, Gray, and Christmas. Andrew, good to see you this morning. So why that spike? That's a pretty large.
ANDREW CHALLENGER: Yeah, we saw 125 CEOs depart over the course of July. And that really is a return to the pace that we were seeing prior to the pandemic in 2019. We saw record CEO departures. But that really stalled out at the beginning of the pandemic in April, May, and June. We saw CEO departures come to almost a standstill as companies retained their CEOs through these crisis moments. They weren't making major changes. But now in July, we're starting to see companies particularly in sectors affected by the pandemic most critically, make changes at the top again.
ALEXIS CHRISTOFOROUS: Andrew, that's a really interesting point, because it's usually during times of turmoil and uncertainty that you don't want to rock the boat and make changes at the top. Why do you think these companies are? Is the pandemic actually causing this turnover in the C-suite?
ANDREW CHALLENGER: Yeah, I think it's hard to deny the fact that because we're seeing the highest turnover in sectors like entertainment and leisure, which have been rocked by the crisis, that as companies start to face completely new revenue models, business models, they're bringing in new strategic hires-- people to lead the organization through this crisis and into the future world that we're going to see post-pandemic.
BRIAN SOZZI: Do you think we'll see more spikes like the one you just announced this morning going into the back half of the year, under the premise that a lot of these CEOs-- they've been doing this for a while, and maybe the pandemic has just flat out burnt them out?
ANDREW CHALLENGER: Yeah, right? CEOs are facing today both health and pandemic crises. They're seeing their workforces having to be able to operate from home. They're facing demand shocks left and right. And they're also seeing cultural issues. We saw 85% of companies are directing George Floyd's death and racism in their workplace. This multitude of crises I think is piling on CEOs, and you're starting to see some boards start to move people out and onto the next leader.
ALEXIS CHRISTOFOROUS: Is there one sector in particular that's seeing a lot of turnover right now? Or is this just a broad-based trend that you're seeing, Andrew?
ANDREW CHALLENGER: No, we're really seeing CEO turnover overlap with where we're seeing layoffs-- so companies that are really struggling. The government nonprofit sector led out to a place where we've seen a lot of change-- we mentioned health care and hospitals. We're seeing a lot of change at the top-- and then also entertainment and leisure, areas that have been most hard hit by the crisis.
BRIAN SOZZI: Andrew, who is the pandemic CEO of the future? I imagine this is, in many respects, a completely different skill set to be managing during a pandemic than it was a couple of years ago. Sure, you can crunch some numbers, you can go shake some hands around the office, but you can't really-- I mean, the skills now seem to be in-- you need a different skill set.
ANDREW CHALLENGER: Yeah. Interestingly before the crisis, in 2019, we saw a trend of a lot of companies bringing in CEOs with deep digital experience, even in industries that haven't made that full change yet. And I think that just shows that people understand the trend is under way. CEOs with an ability to manage a workforce that's working from home largely, that's able to shift business models and strategy towards a new digital world have already been in high demand. And this crisis just is going to further accelerate that trend.
ALEXIS CHRISTOFOROUS: When you look back at history, when's the last time we saw turnover like this? I don't believe we saw this happen during the other big economic downturn during the Great Recession of '08-'09. So is this like any other time? I mean, arguably, for this generation, we're not living like any other time because of this pandemic.
ANDREW CHALLENGER: Yeah. So I don't think quite-- the crisis hasn't caught up in terms of CEO turnover quite yet, even though we saw a spike this month. Overall this year, CEO turnover has been down, been depressed because of the crisis. I think part of that is trying to hire and recruit a new CEO virtually has been an enormously difficult experience for companies.
We saw in 2008 and 2009 a big spike in CEO turnover through that recession as companies that weren't being successful were moving around their leadership. I think we'll continue to see that this year. So throughout the end of 2020, I expect to see more CEO turnover.
BRIAN SOZZI: Really two disastrous stories this year, Andrew, in the CEO suite. McDonalds-- well, that's going to continue from last year, but this week saying that McDonald's is now investigating former CEO Steve Easterbrook's behavior and trying to claw back that big $53 million severance plan. And Tapestry, that CEO not doing the right thing in terms of relationships, and that came to bite him. What are companies doing? How are they going to improve the background check on some of these executives as they onboard them?
ANDREW CHALLENGER: Yeah, companies are keeping their CEOs on a shorter leash than at any time in history. And it's not a trend that's happening just now, right? It's a couple of departures you mentioned are related to the MeToo movement that's happened over the past few years, as we saw the personal behavior of CEOs under a microscope.
Companies are really taking a close look to make sure that their leaders are reflecting the behavior that they want to see of their own employees and the brand image of their organization. This year, we've also seen a number of CEOs leave due to racist remarks, due to issues related to and brought up by the Black Lives movement. So cultural trends are really translating, both in social media and on the internet and in professional workspaces.
BRIAN SOZZI: You have 30 seconds left. One number that stood out to me in this report, among many-- 64% increase in CEO turnover in the health care space. What's happening there?
ANDREW CHALLENGER: Yeah, hospitals and health care products are facing enormous changes to their revenue models. We've seen a lot of them struggle through the pandemic as they've been focused on specific areas of their hospital that aren't particularly revenue-generating. A lot of companies brought in interim CEOs and veterans through that time period. And now they're moving on to new leadership. So we'll continue to see change in that sector.
BRIAN SOZZI: All right, we'll leave it there for right now. Andrew Challenger, senior vice president at Challenger, Gray, and Christmas-- good to see you.
ANDREW CHALLENGER: Thanks for having me.