Why are so many CEOs stepping down now—years after the height of the pandemic? The answer lies in a mix of delayed decisions, boardroom dynamics, and missed opportunities for honest performance reviews during COVID. As boards return to in-person meetings, long-overdue leadership changes are finally taking shape.
The longer-term impact of COVID on corporate governance is painfully evident in the boardroom.
A spike in CEO departures over the last year reveals a pent-up need to transition CEOs that can be traced back to the COVID years. The pandemic officially ended in May 2023, so why did it take so long for this spike in turnover to occur?
From our perspective, there are four key reasons.
First is the unique challenge of the pandemic as a risk unseen since the Spanish Flu. Not knowing how to assess it, boards forwent transitioning underperforming CEOs unless robust succession plans were already in place, in which case boards moved decisively to replace the CEO.
The three other reasons are less obvious. First, there is little discipline in annual CEO performance reviews by boards where full feedback is shared with the leader. Despite a formal process for reviewing CEO performance, it is often perfunctory, geared more to aligning compensation to CEO peers than actual performance. The mistake lies in failing to establish a rigorous review process with the incoming CEO. Once reviews become superficial, any substance is lost.
Secondly, how actively the CEO positions themselves with the board sets the dynamic. All CEOs have unique skill sets with strengths and weaknesses. We consistently find that executives who made it to the top have done so through an ability to ‘manage up’. By the time they arrive in the corner office, they have honed this skill and use it in their own interests with the board. This often places CEOs informally on a level with board members, allowing them to deflect criticism unless there are formal processes for the board to execute. Thus, it becomes awkward for the board to address a failing CEO. This dynamic was compounded by the virtual nature of board meetings during COVID.
These insights lead to the final reason. The catalyst for serious discussions resulting in CEO dismissal tends to be informal and spontaneous, appearing in off-line discussions among like-minded board members. Boards were not meeting in person during COVID, so discussions were virtual and planned, removing the opportunity to discuss sensitive matters in person between sessions – typically more comfortable for older generations of executives who sit on boards.
In 2024, boards physically came back together to meet, allowing them to communicate formally and informally. They were also better positioned to manage their CEOs and connect more closely with the executive teams. In addition, the stock markets performed well, which exposed CEOs who had blamed market conditions during COVID for disappointing results.
Conclusion
Boards see terminating CEOs as high risk, requiring deliberate intent in executing this process. Formal processes that should lead to terminating underperforming executives can atrophy over time, necessitating informal discussions outside of the boardroom to initiate momentum toward this end. During COVID, circumstances that foster these discussions were less frequent and could be influenced by CEOs managing up to their supporters on the board. While often triggered by a few active board members, it takes time to build a quorum and engage the remainder of fellow board members. This, we assert, led to the spike in CEOs transitions post COVID.
