Why public tech CEOs are turning over, fast—and how companies should plan for succession

If current trends continue, 2023 will yield the highest public tech company CEO turnover rate of the past three years, with a meaningfully higher rate than 2022.

Leveraging their Global CEO Turnover Index, executive search and leadership advisory firm Russell Reynolds Associates analyzed more than 650 of the largest global public tech companies (sized at least $500 million in revenue) and found that 69 CEOs stepped down in 2022. This year, CEO turnover accelerated–the number of CEOs who have stepped down was already nearly the same (63) by the end of Q2 in 2023. With a projected total of 88 by year’s end, the uptick of CEO transitions this year far surpasses rates of any recent years, save 2021, when global economic downturn as a result of the pandemic led to an abnormal rate of turnover.

Navigating a dynamic environment

What is causing this accelerated rate of turnover? “As the tech markets tightened at the end of 2022, boards were closely evaluating whether they had the right CEO to lead their company through more disciplined and profitable growth,” noted Tuck Rickards, Russell Reynolds’ managing director and global technology sector leader. “We are in an environment where companies that were built for growth-at-all costs were not necessarily prepared for this more execution-oriented environment.” As a result, boards have been making changes at the top.

Rickards predicts that this trend will continue into 2024. While the market is picking up momentum, there is even more pressure on CEOs to deliver on performance. Boards are now looking to accelerate growth and take market share while also grappling with the next wave of tech disruption, such as generative AI. These trends are sure to continue, putting additional strain on CEOs and leadership teams.

So what should tech companies and their boards do to plan for and navigate this difficult market environment? Rickards offers some guidance:

1. Make sure your CEO has the skill sets needed for the next chapter of growth.

It’s important that boards have thought carefully about the ideal “future CEO success profile,” and that current and future CEOs have the experience required to deliver on the strategic and financial objectives of the business, says Rickards. Tech companies are making specific decisions to bring on board new CEOs that “spike” in desired areas, such as go-to-market, strategic product and scaled operations.

2. Develop internal candidates while keeping eyes on the best external candidates in the market.

Proactive succession planning is key to long-term value creation and success, and historically, tech companies have not had robust CEO succession planning. Tech companies are organized functionally and do not always have obvious GMs as internal succession candidates. For this reason, explains Rickards, it’s especially important for tech companies to develop internal talent that can work across functions; and equally important for boards to have a process to regularly benchmark their leadership teams against external CEO and C-Suite talent.

3. Stay engaged as a board.

Boards are playing increasingly hands-on roles in demanding more prioritization and operational rigor, notes Rickards. Forward-thinking tech companies are ensuring that they have the right composition of board directors, including proven CEOs, QFEs, and commercial leaders who can be valuable resources to guide and advise senior leadership teams. Having experienced CEOs and operators on boards also helps mitigate risk and deal with unforeseen events, including abrupt CEO and leadership team transitions.

4. Make sure you have the right team in place to operate effectively.

In this more demanding operating environment, it is critical that tech companies have the right leaders in each function and that they are operating effectively as a team, says Rickards. Having senior leadership working seamlessly together takes some pressure off the CEO, who is already being increasingly scrutinized for performance and results.

A pragmatic, yet optimistic assessment

Capital markets are ruthless and efficient, but the technology industry is a dynamic and resilient one. With thoughtful succession planning, Rickards believes that tech companies can withstand CEO turnover and even emerge better for it. The moves that boards have made over this past year will position their organizations well for future success. Problems occur when companies are not planning ahead and are caught off-guard, introducing unnecessary disruption and risk.

Authors

Robert Alexander is a member of Russell Reynolds Associates’ Technology Knowledge team. He is based in New York City.
Jemi Crookes leads Russell Reynolds Associates’ Technology Knowledge team. She is based in Washington D.C.
Tuck Rickards leads Russell Reynolds Associates’ Technology practice and is an Executive Board member at Fast Company. He is based in San Francisco.

This article was originally published by Fast Company.