Fired or Retired? a Competing Risks Analysis of Chief Executive Turnover

Abstract

We apply duration analysis to model the tenure and mode of exit of CEOs from FTSE 350 companies from 1996-2005, a decade in which corporate governance reforms have sought to increase the accountability of the CEO to shareholders and their representatives on the board. We find a greater likelihood of dismissal in the latter part of the period. However, we also find that the likelihood of forced departure sharply decreases from the fifth year of a CEO's tenure. We find evidence that this is because CEOs who survive beyond year four are able to entrench themselves in their position. Copyright � The Author(s). Journal compilation � Royal Economic Society 2009.

CEO Turnover and Compensation: An Empirical Investigation

“…10 Furthermore, Gregory-Smith et al (2009)¯nd that the likelihood of CEO departure drops dramatically after a CEO's fourth year in o±ce and that this appears to be due to CEO entrenchment. 11 As in Bebchuk et al (2011), CEO centrality is measured by aggregating the total compensation of the top¯ve executives at each¯rm.…”

“…4 The Gompers et al (2003) G-index. 5 I use 4 years as a threshold based on evidence found by Gregory-Smith et al (2009) that probabilities of CEO dismissal decline after the fourth year and this appears to be due to entrenchment e®ects. R. Graefe-Anderson alternative measures of outgoing CEO power reveal a di®erent result.…”

“…seeGregory-Smith et al (2009), who¯nd evidence of entrenchment e®ects and lower probabilities of forced turnovers after the fourth year in o±ce.…”

Was Adam Smith Right? Evidence of Compensating Differential in CEO Pay

“…For the USA and the UK, Conyon () and Gregory‐Smith et al . () find evidence that risk of CEO dismissal is negatively associated with firm performance. However, an increasing body of literature questions the ability and willingness of the directors to replace under‐performing CEOs (Jensen, ).…”

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“…Hom et al () described how these states arise (identifying an array of forces) and their different behavioral profiles, including turnover speed and destinations. In short, they advocate broadening criteria to include different types of leaving (and staying), turnover speed (Lee, Mitchell, Holtom, McDaniel, & Hill, ), and post‐exit destinations (Gregory‐Smith, Thompson, & Wright, ; Lee et al, ). We also believe such criteria are predictable.…”