The Billion-Dollar CEO Transition

The Billion-Dollar CEO Transition

For all the talk of technology making human beings obsolete, we live in a talent-driven business environment, and nowhere is that more true than at the top of the corporate hierarchy. Recent studies of CEO impact have found that the competence of the chief executive makes a huge difference to business performance and shareholder value, which is why directors are quicker than ever to fire underperforming CEOs and why mergers and acquisitions aimed at “acqui-hiring” the CEO of the acquired company are becoming more common.

The latest reminder of the outsized value of the CEO came with Tyson Foods’ announcement last week that its CEO Donnie Smith would step down at the end of this year. Tyson’s stock had quadrupled during Smith’s seven-year stint at the helm, Geoff Colvin and Ryan Derousseau noted at Fortune, and news of his departure contributed to an instant $3.4 billion decline in the company’s market value.

“The larger point,” Colvin and Derousseau explain, “is that this type of value-jarring scenario is playing out more often, and it didn’t used to happen.” They point to some other recent examples of high-level personnel changes that led to sudden shifts in the market:

-American Airlines COO Scott Kirby left to become COO of United Airlines in August. United gained $1.5 billion of market value on the news.

-Henkel Group and Adidas announced in January that Henkel CEO Kasper Rorsted would leave to become CEO of Adidas. Henkel immediately lost $2 billion of market cap, and Adidas, a smaller company, immediately gained $1 billion.

-Starwood Hotels and Resorts CEO Frits van Paasschen resigned abruptly in February 2015, and no successor was named. The company gained $420 million on the news.