By Svea Herbst-Bayliss

NEW YORK (Reuters) – U.S. companies with declining stock prices are now quicker to blame management and fire top executives, but the process of finding a replacement has remained largely unchanged over the past decade, according to a report published on Monday.

Research group The Conference Board’s report, “CEO Succession Practices in the Russell 3000 and S&P 500,” found that over the past seven years, financial performance and, most importantly, a company’s stock price have become a stronger indicator of a chief executive’s ability to keep his job. : 2024 Edition” report.

Latest figures show that 42% of S&P 500 companies that have changed top executives this year have stock returns in the bottom quartile of their industries. That number is even higher among Russell 3000 companies, the index that tracks the 3,000 largest U.S. companies; 45% of companies that replaced CEOs this year reported shareholder returns in the 25th percentile.

Only 30% of S&P 500 companies whose CEOs replaced them in 2017 achieved bottom-quartile shareholder returns, compared with 29% of Russell 3000 companies, according to Conference Board data.

“Company boards are clearly becoming less patient with underperformers,” said Blair Jones, managing director of executive compensation consultancy Semler Brossy, who co-authored the report.

The report’s authors said the board’s sense of urgency to make sure the right person is running a company has increased dramatically since the pandemic, as external factors such as supply chain disruptions and geopolitical drama are no longer seen as excuses for poor returns.

Importantly, scrutiny from new investors, including company activists who routinely demand changes in executive leadership, has linked weak stock prices to CEO tenure, the report’s authors said.

“Boards often want to get ahead of any activists who might make replacing the CEO one of their first demands,” Jones added.

In the last few months, US companies Starbucks and Bloomin’ Brands have changed their CEOs, and Swiss multinational Nestle has also changed its CEO. Activists are pushing for CEO changes at Southwest Airlines, where Bob Jordan keeps his job, while pressing the board of Air Products and Chemicals to develop a succession plan for its octogenarian CEO.

Although boards are now quicker to fire CEOs of underperforming companies, the report finds that boards are sticking to traditional hiring models.

They prefer company veterans who are knowledgeable about the corporate culture, have demonstrated loyalty to the organization, and can transition into the job with minimal disruption.

Data shows that 77% of new S&P 500 CEOs and 59% of new Russell 3000 CEOs this year are insiders. Last year, this rate was 74% for S&P 500 companies and 64% for Russell 3000 companies. Nearly half of the insiders previously promoted to the CEO position were serving as chief operating officer, president or chief financial officer.

The report shows that the number of female CEOs has reached a historic high of 9.5% in the S&P 500 and 7.6% in the Russell 3000. But they were all hired at smaller companies with less than $5 billion in revenue, and most were hired in the healthcare industry. , consumer discretionary and materials sectors.

“Overall, the outcome of the succession process looks pretty similar to the last decade, with companies shifting toward white men in their early 50s who are chief operating officers,” said co-author and Georgetown University professor Jason Schloetzer.

(Reporting by Svea Herbst-Bayliss; Editing by Jamie Freed)