CEO Quitting Times?

Bart Shuldman still doesn’t know exactly why he had to resign as CEO of TransAct Technologies in the spring of 2023. He had led the gaming and food service technology company back from the brink of ruin through Covid and beyond, had notched and fulfilled a major order from McDonald’s and, with his team, had made TransAct No. 1 in the casino market.

Sure, the Hamden, Connecticut-based company had been struggling since the pandemic. The company had very little revenue for almost a year, which caused losses for 2021 and 2022 despite Shuldman’s efforts to lead TransAct to more solid ground. There had been a cyberattack. And activist directors who had gotten onto the board were getting impatient.

“I had been at the company for 27 years, but after a while, as you’re working long hours to keep the business afloat, and you are first to get into production in many of your markets, and you win incremental market share, you put up your hands and say, ‘Just pay me and I’ll leave,’” Shuldman recalls. “And that’s what I did. When I left, the stock was at $8 a share, and we were about to realize record revenue and profits. The stock lately has been below $4.50. To this day, shareholders call me and ask what went on, and I say, ‘They wanted me to leave.’”

Shuldman didn’t look back, although he felt badly for his team. “I know what I did for the company.” (TransAct didn’t respond to a request for comment.) Shuldman is hardly alone. Not only is average CEO tenure shortening, but the number of CEOs making unplanned departures has been rising, according to executive placement firm Russell Reynolds Associates. Something has been changing in the governance landscape, and it’s got CEOs in its crosshairs. “You could call it ‘premature succession,’ but we’re seeing evidence of an increase in the frequency and acceptance of CEOs stepping down from their roles, citing pressure, life-priority choices or simply that the conditions for their success are compromised,” says Stephen Langton, head of the board and CEO advisory practice in Asia Pacific for Russell Reynolds.

Patrick Thean, an executive coach and CEO of Rhythm Systems, says that “more CEOs are leaving ‘before you fire me.’ If they don’t believe they’re going to have a chance to succeed, then there’s a good chance they’ll take themselves out.”

Unanticipated Transitions

The list of recent departures at big but troubled companies—including Starbucks, Boeing, Nike, CVS, Hertz and Peloton Interactive—undergirds the trend. But CEOs of many PE-backed and other smaller companies are moving on, too.

The situation may be especially tough for women leaders. The average tenure for female CEOs in the S&P 500 in 2023 was just 2.1 years, compared with 9.9 years for men. These numbers have led to the “glass cliff theory,” which holds that women are often appointed to senior roles at especially difficult moments for organizations and then subjected to particular scrutiny.

“CEOs don’t step down when they’re having fun,” says Matt Paese, an executive coach and SVP at Development Dimensions International. “But there are reasons. Some specific to this moment, some that go across time.”

Many of today’s challenges stem from the unforgiving crucible of the pandemic, whose effects are still being felt. There have also been supply chain issues, a surge in inflation, labor shortages, the spread of shareholder activism, “return-to-the-office” decisions, domestic politics, geopolitics—then add AI and try to figure out what to do with it.

“It’s not enough to run the company efficiently, but now you have to respond to external events, as well as the tremendous pressures that activists are putting on companies right now,” says Bill George, former CEO of Medtronic and an executive fellow at Harvard Business School. “More CEOs only want to go seven or eight years, not 10 to 12.”

A rising number of internal pressures includes “an increased emphasis on leadership capacity,” says Scott Campbell, founder of Seminal Coaching and a Chief Executive Group coach. “Things like presence and discernment and empathy, versus strategy and management ability.”

Many CEOs are tiring under pressure to “transform” their companies in repeated ways—count digital overhauls, ESG and DEI among those. “They’re experiencing ‘change fatigue,’” says Kathy Gersch, chief commercial officer of change management-firm Kotter.

Exit Accelerants

The challenges of managing today’s less-available talent also weigh on CEOs. “It’s difficult to attract and retain people for the most value-creating roles,” says Ted Bililies, global leader of transformative leadership for AlixPartners consultants. “And now value is being created by people throughout the organization.”

At the same time, Bililies notes, Gen Z—with their focus on digital technology, including social media and the gamification of work—will soon comprise half of the North American labor force. “Many CEOs either don’t know how to handle that or are turned off by it,” he says. “They don’t want to indulge Gen Z.”

The rise of private equity is also highlighting the issue of CEO tenure. PE firms keep or bring in CEOs with definitive timelines for achieving financial goals and preparing portfolio firms for sale. An AlixPartners survey of PE buyers showed that when the CEO was removed within the first year, half of the time it was at the request of the PE company.

“The typical hold period is only three to five years, so change has to come quickly,” says Dave Meirick, who retired as CEO of PE property RoadSafe Traffic Systems in 2023 after a successful decade at the helm. “By the time you figure out you have the wrong guy, you’re a year and a half in.”

Beyond today’s accelerants are a litany of timeless challenges. “The job is all-consuming,” says Paese. “You experience less truth from the people around you than in any other job. CEOs have less power than they thought because the cost of using power in the CEO seat becomes greater than anticipated. You can’t be 100 percent human in the CEO job if you take your friendships, your opinions, your beliefs—any extreme versions of any of those can negatively affect the company. It constrains one’s ability to be natural, and that’s exhausting.”

Executive coach Dick Daniels, who serves as a coach for Chief Executive Group, says four concepts comprise the motivations of most departing CEOs:

Succession. “Leaders realize it’s time for the sake of the company to retire and leave well by handing off the leadership baton to the next generation.”

Achievement. “Leaders who’ve achieved a goal on a professional bucket list can realize there’s a relational side of life that they want to pay attention to, or interests or hobbies.”

Well-being. “It’s the stress of expectations and constant messaging from a board, or customers, to do more with less. That takes a toll physically, mentally, emotionally, relationally and spiritually.”

Balance. “In the C-Suite, you’re rewarded for the hard skills of leadership, which are all tied to bottom-line performance. But that takes time and accountability away from the soft skills of leadership.”

Push Protection

Here’s some advice from experts for CEOs to help inure themselves to departure or to maintain their autonomy about any decision:

Leverage EQ. “It becomes more important to find comfort in being uncomfortable,” says Jane Edison Stevenson, global vice chair of the Korn Ferry placement firm. Use emotional intelligence to establish “truth tellers in the organization because the vast majority of people are going to tell you that you look lovely as you walk off the end of the pier.”

Pick a driver. Get very clear on what you’re trying to accomplish and communicate that across the organization quickly and constantly, and start to deliver wins early and often, Gersch says. Communicate them to the board, the Street and the organization.

Solidify your team. Data shows that about two-thirds of CEOs don’t think their teams are effective at driving their strategy forward, Paese says. Gersch urges “getting your arms around your team and making sure they’re on board and aligned and united, and if people aren’t, you’re going to make a change.”

Partner with the board. “Be fully transparent, and form a partnership with the board so you’re not out there all alone,” George says. “Make sure your board is going to back you up, particularly with activists.”

Target the right feedback. “Work to gain input all the time, not just, ‘Am I doing OK or not?’” Stevenson says. “You need safe counsel and a sense of what board members are perceiving about where the company is and how you build their confidence and trust to build a better strategic direction.”

Paese urges CEOs to “check in with each board member individually a couple of times each year, not to influence them but to gather what they feel passionately about and how that might be evolving.” And carve out a special relationship with the board chair “to have a shared sense of what is important and present a united front.”

Read the tea leaves. “If you’re presenting what you’re doing and waiting to see if you get applause or tomatoes, that’s not the relationship you want with your board,” Stevenson says. “If you’re hoping for a positive response and don’t understand already what the response is likely to be, that’s a negative sign.”

Vet the PE firm. CEO candidates with PE-portfolio companies should “vet the investor,” Meirick says. “What’s their history with CEOs? Understand investors’ vision and expectations and be able to say to them, ‘Here’s what it’s going to take’ to achieve that.”

Be transparent. For private and public company CEOs, Meirick’s favorite slogan is “‘Good news fast; bad news faster.’ If you say, ‘This year is going to be difficult,’ do it in February and say you’re going to work through it, and here’s what to expect. Don’t cover it up and say in July that you’re not going to make the numbers.”

Change course gracefully. “When things in the environment change, be transparent and say, ‘The wind changed, and we’re going in this direction, and here’s why,’” Gersch says. “Be open and authentic to talk about it, not on a whim but with real information.”

Focus on succession. More boards are looking harder at how CEOs are doing their own succession planning. Activist investors “are deeply concerned about CEO turnover, and they recognize that the CEO bench comes from the C-Suite,” says Jack (Rusty) O’Kelley, co-leader of Russell Reynolds’ board and CEO advisory practice.

Be a bird in the hand. Russell Reynolds’ rule of thumb is that an external candidate to fill the CEO role must be at least 30 percent better than an internal candidate. Boards are taking a closer look at insiders: They’re generally lower-risk and cost less; there’s less shareholder and media pressure for performance right away; and an internal promotion to CEO is more likely to inspire and encourage current staff.

Internal candidates also have an edge in that, while they haven’t yet been a CEO, they typically serve longer than those who were externally appointed and are less likely to be fired.

Get ahead of AI. Gersch advises CEOs to figure out “how is AI relevant to your business, and what do you do to drive wins with it, but not get distracted by things not important to the business.”

Says Campbell, “No one understands where AI is going, and it’s changing at such a dramatic pace. It starts to feel overwhelming.” On the other hand, he says, “So many opportunities are bubbling up out there that are emerging because of AI and other technologies, so [CEOs] may be antsy to move on to” another job that would take advantage.

Recruit a coach. For all of these considerations and more, many CEOs swear by the help of an executive coach. “I try to understand if they’re expressing inclinations to walk away and to work with them to explore what’s underneath that,” says one coach, Campbell. “What are the drivers? Are they just bored? They need to understand the root causes so they can address what’s making them feel how they do and perhaps get on a different path.”