As uncertainty looms, Canadian CEOs head for the exits

Excerpted from The Globe & Mail:

It took a while, but the Great Resignation has come to the C-suite, with some of the biggest household names in corporate Canada calling it quits.

There’s been a whirlwind of change in the corner offices of some of Canada’s largest companies in recent months, including high-profile departures such as Alex Pourbaix, who retired as chief executive officer of Cenovus Energy Inc., the exit of Jose Cil from Restaurant Brands International Inc., and Galen Weston at Loblaw Cos. Ltd., who’s decided to let someone else be the political punching bag over high food prices for a change.

All told, this has been the busiest start to a year for turnovers at S&P/TSX Composite Index companies in at least a decade, an analysis of CEO transition announcements shows. Between January and April, 10 index-listed companies with a combined market capitalization of nearly $200-billion said their CEOs would be leaving, roughly double the number during the same period in the previous two years, and edging out the previous high of eight in 2020.

While CEO transitions can reinvigorate a company’s employees and provide an opportunity for a strategic rethink, they also present great risk. After all, studies suggest as many as 40 per cent of new CEOs fail in the first 18 months in office, which can pummel a company’s shares. So, as the most significant senior management handover in years unfolds, boardroom succession plans for chief executives are being put to the test.

The busy start to this year comes on top of a hectic second half of 2022, when Onex Corp.’s Gerry Schwartz announced his retirement after 40 years at the helm, Brian Porter departed from Bank of Nova Scotia triggering, in turn, change at Finning International Inc. when that company’s CEO, Scott Thomson, moved to the bank – and Al Monaco left Enbridge Inc.

In fact, according to firms whose business it is to help other businesses find bosses, the pace of executive change across companies and organizations of all sizes is eerily reminiscent of the Great Recession.

“From what I’m seeing out there and hearing from companies, we probably haven’t seen this amount of CEO transition since at least 2008,” said Kelly Blair, a managing partner with executive search firm Caldwell Partners. “That was recessionary. This is something different.”

Pinning down exactly why CEOs leave companies can often be a guessing game, since the boilerplate language used in most CEO departure announcements – that he or she has expressed their “intention to retire,” or is “leaving to pursue other opportunities” – reveals little about the dynamic between board members and CEOs.

Even so, a picture is emerging. The shock waves from the COVID-19 pandemic, which caused business leaders and corporate boards to hunker down, have largely subsided. That’s provided companies with breathing room to think about succession planning again – and to examine whether their CEO is still the right person for the job.

At the same time, companies and their CEOs are faced with mounting uncertainty about an economic slowdown even as they continue to grapple with high interest rates, relentless technological disruption, workplace battles with employees and the shifting world of environmental, social and governance issues. That’s all bringing heightened scrutiny from a more assertive and outspoken shareholder base.

The first quarter saw the highest number of CEOs leave U.S. companies since the start of 2020, according to the latest CEO turnover report from executive coaching firm Challenger, Gray & Christmas. March, in particular, had the most departures for that month since 2002, when Challenger first began tracking CEO exits.

There are reasons to believe the pace of CEO turnover could quicken as the year progresses.

For one thing, some of Canada’s largest banks have reshuffled their senior ranks lately, sparking speculation that change may be afoot. After all, four of the Big Five banks last announced leadership changes between April and December of 2013, and the average tenure of the previous two generations of bank CEOs was just over nine years.

The prospect of a recession could also be prompting some soul-searching on the part of existing CEOs who might see now as an opportune time to call it quits.

“You expect high CEO turnover during a recession, so what’s surprising is to see this level of change when so many companies are doing well,” Ms. Blair said. “Fears about an impending recession and pressure on stock prices is prompting some leaders to step down to get ahead of the risk to their own reputations and track records.”

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