New Year Sees Shake-ups in Corporate America

By Martha Graybow, Reuters  |  Posted 2008-01-09 Print this article Print

It could be a rocky year for many U.S. business leaders.

NEW YORK—It could be a rocky year for many U.S. business leaders.

The uncertainty follows a string of recent departures as hard pressed corporate chiefs grapple with the housing and credit crunches, soaring commodity and oil prices and concerns the U.S. economy is teetering on the edge of recession.

And with activist investors intent on ousting underperforming managers and boards of directors growing impatient when companies run into trouble, more top chief executives could be shown the door.

"There's no question that there are some high-profile CEOs right now who are departing," said John Challenger, head of Challenger Gray & Christmas, an employment services firm.

"If corporate profitability begins to decline, the impact of those negative results inevitably is going to land on the CEO's head."

Only a week into 2008 and already some big-name companies have shaken up their executive suites.

Starbucks Corp replaced its CEO with founder Howard Schultz — the company's chairman — after a year during which its shares lost nearly half their worth amid poor U.S. sales growth.

The CEO of struggling doughnut chain Krispy Kreme Doughnuts Inc has stepped down after less than two years as losses and sluggish sales persist.

The head of beleaguered Wall Street firm Bear Stearns Cos Inc, James Cayne, stepped down as CEO on Tuesday but will stay on as chairman.

And at Sallie Mae, the student lender formally known as SLM Corp, a turnaround expert has been named chairman as the company grapples with the credit market squeeze and a legal battle over a collapsed buyout.

CEO departures were down last year after setting records in 2006, although there were signs of a speed-up toward the end of 2007 as the mortgage market meltdown hurt lenders and Wall Street firms that invested in risky home loans.

Last year, U.S. companies announced 1,356 CEO changes, down 8.3 percent from 1,478 departures in 2006, when many top executives lost their jobs following probes into how stock option grants were awarded, according to Challenger Gray data. The tallies include CEOS who resigned, retired, were fired, or in a few cases, died.

CEO turnover last year peaked in November when there were 132 departures — including Citigroup Inc's Charles Prince — up from 113 in November 2006. Reflecting the mortgage crisis, the financial sector had 134 departures in 2007, up from 128 a year earlier.

CEOs have always been on the hot seat when company results falter, said Jim Huguet, president of Great Companies Inc, an investment firm with about $450 million under management. But what is different today is the magnitude of the problems facing some companies and how quickly boards are taking action, he said.

Bear Stearns, for instance, took a $1.9 billion write-down in the quarter ended November 30 related to mortgage-related investments.

Boards "want to distance themselves from the problems as much as they can," Huguet said. "If they don't get him (the CEO) out, it falls upon the board as to why you let this person stay on for so long."

Cayne, Bear's long-time CEO, is expected to announce soon that he is stepping down, according to media reports. Bear could not be reached for comment on Tuesday. Cayne had been featured in unflattering articles about his devotion to golf and bridge while the firm's fixed-income business was roiled by the mortgage turmoil this past summer.

CEO turnover has also been affected by activist shareholders, such as hedge funds, who have become more vocal about change.

Last year, for instance, H&R Block Inc ousted its CEO after former U.S. Securities and Exchange Commission Chairman Richard Breeden — now an activist investor — argued the company should quit banking and subprime mortgage lending and focus on tax preparation.

CEOs are well paid, although their tenure can be brief. In the past, it was common to see CEOs on the job for a decade or more, but today, the average is less than five years, said James Melican, chairman of shareholder advisory firm Proxy Governance Inc.

As many companies take stock as the new year begins, it is not surprising that some have decided to start anew, Challenger said. It is unclear, though, if the trend will continue.

"Part of it is just a natural time to start the year fresh," he said. "We also have an economy that is faltering, investors are impatient. They want to see their boards shake things up."

(Editing by Andre Grenon)

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