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CEO Churn and its influence on success of a company

S. Krishna Prakash and N. Bala Kumaran

CEO change is a sensitive topic for discussion that troubles many corporate boardrooms and recent trend indicates that the conversations are not getting any easier. Over the last 8 years, 19% of top private companies1 in India on average changed their CEO every year. This number in comparison is higher than global average2 of 17.5%, suggesting that Indian board rooms are more likely to shake things up if performance is not up to the expectations.

This leads to a few questions, ‘How much change is too much?’, ‘Does it make sense to change CEOs at the drop of a hat for every dip in performance?’, ‘What is the norm for the number of changes to sustain growth?’, ‘Is retaining the CEO completely out of question?’

EMA Partners, a leading global executive search and leadership advisory firm set out to study CEO Churns over the last 8 years of top companies in India to find answers to some of these questions.

Analysis Definitions: The period of the analysis is 2011 to 2018 beginning post downturn period, which covers two 4-year business cycles which could be considered ample time for a CEO to stamp his/her footprint on the company. The companies data set is 79 BSE 100 companies representing India’s best across key sectors (excluding 11 government and state-owned companies and 10 companies which did not have a presence in BSE 100 for the entire period of analysis). The widely accepted success metric for the company is Total returns to shareholders (TRS) reflecting corporate performance and shareholder expectations. Total returns to shareholders (TRS) is the total return of a stock to an investor, or the capital gain plus dividends.


The CEO churn

The top companies’ board rooms in India do not shy away from changing CEOs. This is quite clear from the fact that out of the 79 companies, on average at least 15 CEOs are changed every year. The year 2014 saw the peak of CEO changes when 24 companies at the top-tier saw changes, possibly board rooms changing gears after a significant election that year, which was followed by a tame 2015 with 8 changes to normalize the curve.

  • Over the last 8 years, 19% of BSE 100 in India changed their CEO every year. This number in comparison is higher than global average of 17.5%

Looking at the entire 8 year period of 2011-2018, on average top Indian companies make at least one CEO change. While the average is one CEO change, there were 19 companies who made more than one CEO change and 29 companies succeeded in retaining their long-time CEOs. Interestingly, both sides have shown a directional correlation to the success of their companies.

  • On average top companies seem to make 1 CEO change over 8 years
  • Companies that make more than 1 change to CEO are punished by losing shareholders confidence and hence lower TRS growth



Churn too much - Get punished!

The companies that shifted more than one CEO over the 8 year period saw their TRS growth (CAGR) diminish. 10 companies that changed CEOs twice, yielded on average 6% TRS CAGR while 8 companies that changed CEOs thrice, yielded on average 1% and 1 company that changed CEO 4 times, yielded -12% TRS.

On the flip side, 31 companies that changed CEO in line with the average of one CEO over eight years grew TRS by 9% on average which in comparison to 29 companies that retained their CEOs over eight years grew TRS by 11%.

  • There is an inverse relationship between making CEO changes and Growth of TRS, i.e. If a company makes too many changes in a short span of time, shareholders lose confidence
  • R square/ Correlation Coefficient = -0.22-


This suggests that there is an inverse relationship between the frequencies of CEO changes with the growth of TRS. The more changes to CEOs made over an 8 year period, more likely TRS would decline. This would make logical sense as a shareholder is more likely to lose the confidence in a company’s board if frequent changes are made to the CEO position. Frequent CEO changes highlight a few possible scenarios – second-guessing nature of the board, wrong CEO choice, not allowing enough breathing room for CEOs to execute on their plans and some deeper fundamental flaws in company’s decision making.

While the inverse correlation can be used as a guidance, correlation cannot be attributed to causation and this inference needs to be taken with a pinch of salt. TRS is heavily influenced by numerous factors including but not limited to – company financials, risk exposure, shareholder expectations, etc. However, if one were to attribute a single person within the company who has the highest influence over the growth of TRS, it would have to be the CEO. With that in mind, the inverse relationship between TRS growth and frequency of CEO change is directionally valid.


Hypothesis: Family vs. Non-Family


When looking at companies that make frequent CEO changes vs. the ones that make fewer CEO changes, multiple factors could be considered – like size of the company, industry, location, etc. However, one hypothesis showed a significant dispersion in the frequency of change: ownership pattern of family-owned companies vs. non-family owned companies. Companies in the data set were split into family-owned vs. non family owned based on majority combined controlling share ownership of family members among shareholders.

  • Family owned companies make less changes (0.7x) to CEO in comparison to non family owned (1.7x)
  • Only 21% of non family owned companies stick to their CEO. Majority of them at least made 1 change in last 8 years1


The family structure of ownership plays a deciding factor in the frequency of CEO change. A family-owned company in BSE 100 changed on average 0.7x CEOs over the 8 year period in comparison to an average of 1.7x of a non-family owned company. This suggests that family-owned companies are likely to stick with their CEOs lot longer than non-family owned companies. However, CEOs of most of the family-owned companies tend to be a core member of the said families. Non-family owned companies, on the other hand, are less likely to continue with their CEOs and prefer on average at least 1 CEO change over an eight-year period.




The research started off with a few questions and the study provided certain key indicators. ‘How much change is too much?’ – Typically one CEO change is normal, more than 2 CEO changes in 8 years is too much as the drop off from 2 to 3 is much higher. ‘Does it make sense to change CEOs at the drop of a hat for every dip in performance?’ No, limiting the CEO change would be the best course of action to maximize shareholder wealth appreciation. ‘What is the norm for the number of changes to sustain growth?’ the number varies between types of ownership – for a family-owned company, retaining the existing CEO is the norm while a non-family owned company changing 1 CEO over an 8 year period is the norm. ‘Is retaining the CEO completely out of question?’, Definitely not, retaining the CEO could be fruitful in most cases, however, in reality, retaining a CEO over 8 years is difficult as evidenced by the number of companies that are able to do so.

The most important thing that boardrooms need to recognize is getting that one important CEO change over an 8 year period right. The opportunity cost of getting the wrong CEO leading the company has a snowballing effect where each failure immensely diminishes the success of the company.