CEOs under fire to perform – or else

CEO turnover set a record in 2006 and could reach another one this year as investors demand higher returns.

By Mark Trumbull | Staff writer of The Christian Science Monitor

from the June 20, 2007 edition

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In the end, Terry Semel held his job as CEO for six years – a longer time than some chief executive officers are granted to produce results.

This week, he's exiting the corner office at Yahoo!, joining a trend of CEO turnovers, that, by some measures, stands at record levels.

The pay for corporate leaders remains sky high, but those compensation packages now face growing scrutiny from both investors and Congress. And the pressure to perform has also increased.

In fact, many CEOs probably feel as if a "for sale" sign sits right outside their door. If a stock isn't performing well, the board will either look for a buyer or find that buyers arrive uninvited. At the hamburger chain Wendy's International, for example, CEO Kerrii Anderson is struggling to revive sales, even as board chairman James Pickett is studying whether shareholders would be better served by selling the company.

And Dow Jones & Co. saw its stagnant share price jump after Rupert Murdoch's News Corp. made a $5 billion takeover offer for the financial publisher. If the controlling shareholders don't agree to the deal, the CEO could find himself struggling to unlock similar value for shareholders.

"There's less room for companies to coast," says John Challenger, president of the outplacement firm Challenger, Gray & Christmas in Chicago. "You get one term in office" as CEO these days. "Some make it for the next term."

CEO turnover hit record levels last year, according to numbers that Challenger has kept tabs on annually since 2000. Judging by the pace through this May, 2007 could set another record.

Investors, of course, always want to see a rising share price. With stock indexes near record levels this week, it may not appear like the most trying of times for top executives.

But many stocks remain far below the highs they hit in 2000, as the 1990s bull market peaked. Yahoo! is one example – with investor worries amplified by the ascendancy of Google as a magnet for online advertising. Mr. Semel, who will remain as the company's board chairman, resigned to make way for the website's co-founder Jerry Yang to return as CEO.

Another big force is also bearing down on chief executives: the threat of buyout by private equity firms.

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