Chief Executive Exits, Firings On The Rise

June 01–It's unlikely to be any consolation to ousted Highmark Health CEO William Winkenwerder Jr., but chief executive firings are on the rise nationally and overall CEO turnover is considerably higher in 2014 than it was in 2013, according to a firm that tracks leadership departures.

In a survey updated monthly, global outplacement consultancy Challenger, Gray & Christmas reported 94 CEOs left their posts in April, while 460 CEOs resigned, changed jobs, were fired or otherwise moved on through the first four months of 2014.

Last year, through four months, 403 U.S.-based CEOs had exited their jobs, meaning exits are up 14 percent year-over-year.

Dr. Winkenwerder's unexpected May 20 departure will be included in Challenger's May update, due out shortly, as will the resignation of Target CEO Gregg Steinhafel, who stepped down May 5 in the aftermath of a major data breach that compromised the personal information and credit card numbers of thousands of customers.

Firings in quick succession are more rare — Dr. Winkenwerder's ouster came a bit more than two years after his predecessor, Ken Melani, was also fired — but not unprecedented. In fact, Symantec, the world's biggest security software company, fired CEO Steve Bennett in March, just two years after his predecessor, CEO Enrique Salem, was ousted.

And last year, troubled electronics retailer RadioShack Corp. hired Joseph Magnacca to be its fourth CEO in three years.

Dr. Winkenwerder isn't the only health insurance executive to lose his job in May. Noridian Mutual Insurance Co. fired CEO Paul von Ebers four weeks ago; Noridian is better known as Blue Cross Blue Shield of North Dakota.

By far, health care has been the most-affected sector — largely due to its size relative to the overall U.S. economy and also because of its variability in the Affordable Care Act era. So far this year, according to Challenger, 105 health care CEOs have vacated their offices.

"The sector is going through a paradigm change," said John Challenger, CEO of the Chicago consultancy. "There's no question that it's a much more volatile environment. CEOs [are] being moved out" if they aren't attuned to the new health care landscape.

That's true in all sectors, said Dennis Carey, an Arizona-based executive succession planner and co-author of "Boards That Lead," a book on board and executive leadership that was published in December.

"We're seeing a sea wave of change now," he said. Boards are becoming more aggressive, asserting their will over CEOs. In public companies, activist shareholders are becoming more vocal, demanding board seats or, in some cases, new corporate leaders.

Mr. Carey pointed to the ongoing saga at Darden Restaurants, whose plan to sell seafood chain Red Lobster to a private equity firm prompted Starboard Value, a hedge fund group, to nominate 12 candidates for Darden's board of directors. If successful, the campaign would result in a full takeover at Darden.

And just last week, a proxy advisory firm recommended that seven of Target's 10 board members — those on the audit and corporate responsibility committee — be replaced.

Most boards aren't engaging in open civil war. The best boards, Mr. Carey said, are always planning, and always have a contingency plan in place in the event of a personnel emergency — be it a CEO death, scandal, recruitment to another company or sagging performance.

Performance issues or philosophical differences with the board generally don't just crop up at one meeting, he said. "I assume there was a trend line that was somewhat discouraging," Mr. Carey said of the Highmark situation.

If that trend line is evident, a board's first job is to determine whether the performance issue is fixable and the "falling CEO" can be rescued. If the answer is no, it's time to go to Plan B, usually someone already inside the company. (Of the top 100 companies in the Fortune 500, 92 of them had elevated their CEOs from within the company, Mr. Carey said.)

Plan B for Highmark was David L. Holmberg, Highmark's head of diversified businesses, who was promoted the same day Dr. Winkenwerder was dismissed. "Fast decisions can be a good thing," Mr. Carey said, particularly if a candidate had been vetted previously.

Two years ago, because of the suddenness of Dr. Melani's dismissal, there was no obvious backup plan. That's why Highmark retained executive search professionals to help find a CEO, and it's why Highmark ultimately settled on Dr. Winkenwerder, a Highmark outsider with Pentagon and Blue Cross Blue Shield experience.

The instinct to conduct a nationwide search for Highmark's next CEO made sense at the time, but in retrospect the man who now holds the top job was under the board's nose two years ago. It goes to show how hard it can be to pick the right man or woman for the job, Mr. Carey said.

"There's no silver bullet," he said. "Every situation is unique."

Bill Toland: btoland@post-gazette.com or 412-263-2625.

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