Frequent CEO changes reduce companies potential to improve equity premium: Study

The companies with fewer CEO transitions enjoyed more than twice the average premium CAGR of 3 per cent, against those with frequent chief executive transitions during the period, as per the study.

corporate
Most resignations or removals occurred in the services industry compared to the manufacturing industry, it added. (Representational image)

Companies that frequently changed chief executive officers (CEO) have reduced potential to improve equity premium, thereby hurting shareholders’ long-term returns, according to a study. The study tracked a few Nifty 50 companies over a 15-year period.

The companies with fewer CEO transitions enjoyed more than twice the average premium CAGR of 3 per cent, against those with frequent chief executive transitions during the period, as per the study. The finding was part of a study conducted by Deloitte India on “What sets outperforming CEOs apart and how boards can help”.

It analysed the financial performance of companies after the appointment of the new CEO. Stability and continuity of CEOs and their policies ensured higher returns, the study noted. Most resignations or removals occurred in the services industry compared to the manufacturing industry, it added.

Services companies saw appointments of relatively younger CEOs. Among other findings, it was also found that outperforming CEOs reached their peak performance much closer to the end of their tenure.”Our study suggested that companies did not cope well with unforeseen and unplanned CEO changes,” said Kumar Kandaswami, Partner, Deloitte India.

Board governance can be an important factor in ensuring a well-planned and smooth transfer of a newly appointed CEO, he added. A breakdown of the CEO demographics suggested a strong preference for experienced executives appointed internally and skewed gender representation. As per the study, outperformers were appointed internally.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express Telegram Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.