Why Are Good Executives Quitting?

At many companies, a successful CEO or other C-level hire can make or break the entire organization. The decisions that person makes and the direction they set for the company are often the difference between short-term struggles and long-term success, and board directors and private equity investors know it. That’s why qualified C-suite candidates are in such high demand.

As a result, the hiring process for these types of roles tends to fall back on what some hiring managers might consider best practices. Past performance, experience in similar roles and time spent at related companies in the industry are all given extra weight, often at the expense of qualified candidates that might not have done the exact job but bring other intangibles to the table.

The results are predictable. Typically, candidates with C-suite titles already on their resume are preferred over those stepping up from lower positions, with the thought that someone who has done this exact job for a similar company will be better equipped to handle the responsibilities going forward. On paper, it’s a way to mitigate risk when hiring a critical new executive.

But reality often doesn’t work out that way.

The burden of experience

A recent Harvard Business Review study, “Why Rookie CEOs Outperform,” found that 70% of public company CEOs performed better in their first chief executive role and, for more than 60%, their second companies failed to keep pace with the overall stock market. The lesson here is simple: Experienced hires don’t tend to do as well the second time around for a whole host of reasons, such as hunger for success, adaptability, intellectual curiosity, a willingness to learn, and not relying on a past playbook. All of those attributes are more common among those stepping up into the C-suite from another role for the first time, it seems.

This tendency plays out in our findings, as well. We recently reviewed a sample of C-level placements made between 2019 and 2022 in an effort to see how first timers performed versus proven executives during a particularly volatile period – pre-, during, and post-pandemic. Performance can be calculated in many ways, but for the purpose of this analysis we looked at stick rate. Did they remain in the role a year later? How about two years? Three years? Our assumption was that the proven executives would be more likely to secure the “good” opportunities and, because they had been successful in similar roles previously, we expected that they would remain in their new positions longer.

We couldn’t have been more wrong. In our sample of non-exits during this period, 92% of first time CFOs remained in the job by year three, while only 63% of proven CFOs lasted that long. At the CEO level, 88% of first timers made it to their third year vs. 79% of proven executives. And, although we found no material difference in exit outcomes between the two groups, those with more experience were more likely to leave prior to a transaction than first timers, at a rate of 33% to 23%.

As they say, based on our data, past performance is not a clear predictor of future success.

But, why? What are companies missing when making these C-suite hires? Why would a first-time executive have a similar probability of reaching an exit, stay in the role longer, and be less likely to leave prior to a transaction than someone who has achieved prior success doing many of the same things?

Is it hunger and a need to put a “win” on the board? Could it be that first-timers have fewer job prospects available to jump to? Are they simply more invested in and committed to the success of the business? Or are PE-backed companies simply over-indexing for experience, using past performance as a crutch and overlooking or misunderstanding “attitude and aptitude”?

Mixed motivations

In an increasingly data driven world, it is possible that the employee’s mindset remains a blind spot in the hiring process. The process of recruiting a C-level executive is rigorous and time consuming, complete with interviews, elaborate assessment tools, scorecards, and forensic reference checks. As it should be, given the cost of getting it wrong. Not only does transitioning executives over and over again add up in terms of hiring and recruitment expenses, but too much C-suite churn can slow down progress in general. Pivoting, changing focus, and adjusting tactics on a regular basis is simply not sustainable.

But too often that’s what happens, overwhelmingly due to a decision made by the individual and not the company. And their motivations can vary, as some of the proven CFOs we’ve worked with have told us.

“The commute was not sustainable for 4-5 years.”

“I could not see the outcome promised or reasonable timing to an exit.”

“I felt the risk was not worth the reward.”

We know that executives must execute the value creation plan, but what is their own mindset? Is their head in the game? Are they aligned with their board? Are the conditions on the ground what they expected? We know that they need to have the right work experience and objective qualifications, but how do we know that they can create the right environment with good jobs that will ultimately show up as productivity, engagement, and in their companies?

I recently spent time with Two Sigma Impact learning about their Good Job Score Assessment Tool, which is designed to address some of these questions. As we move beyond the worker and middle management and think about the “stakeholder mindset,” do we need to place greater emphasis on underlying motivations, drivers, and psychological elements at play?

The answer would appear to be “yes.”

So, the next time you hire a C-Level executive, you may want to spend more time asking yourself if you truly understand WHY he or she wants the job, not just CAN they do it.