'It's a clear signal to CEOs: Deliver value or face heightened scrutiny'

Chief executive officers are facing immense pressure to perform well as a new report from The Conference Board revealed a growing connection between total shareholder returns (TSR) and departing CEOs.

The report found that 42% of companies in the S&P 500 that changed CEOs in 2024 had a TSR that fell below the 25th percentile, indicating low performance.

This is much higher than the 30% in 2017, according to the report.

A similar situation has been found in the Russell 3000, where 45% of companies that changed CEOs in 2024 had a TSR below the 25th percentile. This is also an increase from the 29% in 2017.

The Conference Board said the findings indicate a growing pressure on CEOs to perform well or they risk getting booted out of the organisation.

"It's a clear signal to CEOs: Deliver value or face heightened scrutiny," said Lyndon Taylor, Partner at Heidrick & Struggles, in a statement. "However, boards should be cautious about overemphasising short-term results at the expense of long-term strategy and sustainability."

'Retirement cliff' among CEOs

Meanwhile, The Conference Board also found that CEOs are staying in their roles longer, with succession rates for those aged 64 and older dropping by eight per cent in 2024.

The report noted that this likely reflects the boards' preference for stability, but warned that it could lead to a potential surge in successions as these CEOs eventually retire.

"The fact that CEOs are staying longer may point to a 'retirement cliff' on the horizon," said Matteo Tonello, co-author of the report and Head of TCB Benchmarking and Analytics at The Conference Board, in a statement.

"Boards need to refine their succession strategies to ensure they're prepared for a potential wave of leadership transitions in the near future."

Diversity among senior executives

In terms of diversity, the report noted that the number of female CEOs has steadily increased over the past years. Women are now holding 10% of CEO positions in S&P 500 firms in 2024, up by four per cent since 2018.

Eight per cent of CEO positions at Russell 3000 firms are also held by women, according to the report. This is a three per cent increase since 2018.

Blair Jones, co-author of the report and Managing Director at Semler Brossy, said the rapid increase of women on boards shows "more change is possible."

"To truly move the needle, larger firms should consider examining their talent pipelines and succession planning processes," Jones said in a statement.

The findings come amid a growing push for gender diversity in CEO positions across the world. A global campaign led by chairs and CEOs, named the 30% Club, has been launched in 2010 with the goal of reaching at least 30% representation of all women on all boards and C-suites globally.

The campaign started in the United Kingdom in 2010 and has since expanded to more than 20 countries, including Malaysia, Australia, and Mexico.