Avon Products announced this week that CEO Sherilyn McCoy would step down at the end of next March after six years in the top position at the beauty products manufacturer and direct-marketer. According to the New York Times, McCoy’s departure was the result of investor pressure to change course after a series of disappointing financial reports:
Barington Capital Group and NuOrion Partners called on Avon Products’ board of directors earlier this year to replace Ms. McCoy as poor results weighed on its stock price. Media reports first emerged in June that Ms. McCoy, who has been the top executive at Avon since 2012, was expected to leave the company.
Avon Products on Thursday reported a net loss of $45.5 million in the second quarter — its third consecutive quarterly loss. The company also said that its revenue fell by 3 percent. Its share price has fallen 40 percent this year. The company said that its board had retained the executive search firm Heidrick & Struggles to assist in finding Ms. McCoy’s successor.
The news at Avon comes at a time when institutional investors are taken on an increasingly active role in shaping management and strategy at the companies of which they own shares, pushing for change in financial priorities as well as organizational culture and talent strategies, and demanding the ouster of CEOs whose performance does not meet their expectations.
Part of what makes McCoy’s departure from Avon noteworthy is that she is among a very limited number of women at the helm of a major corporation. Furthermore, as the Times‘ Julie Creswell remarks, she’s the latest in a string of women CEOs who have been pressured to resign by activist investors:
On the face of things, it seems like a great time to be the chief executive of a major American business: median CEO compensation at US public companies is high and rising, and a high-performing executive can command a sizable pay package. At the same time, however, average CEO tenure has been on the decline as boards have become more willing to fire CEOs who fail to live up to shareholders’ high standards for performance.
At the Wall Street Journal earlier this month, Vanessa Fuhrmans and Joann Lublin observed that CEOs of major companies were being forced to resign under investor pressure at an unusually high rate this year. The reasons for this churn are numerous: Activist investors have become more numerous, powerful, and demanding, pushing for major changes not only in financial performance, but also in company culture, talent strategy, and other aspects of a CEO’s job to which shareholders used to take a more hands-off approach. Ethics scandals have become more likely to lead to the demise of a CEO as well. Beyond that, competition has stiffened in many industries and the pace of change has accelerated to the point that even star CEOs are challenged to keep up.
Bloomberg View columnist Matt Levine has a hard time feeling sorry for these “embattled” CEOs, however, considering the kind of money they earn “The job should be terrible!” he writes, “That’s why you’re getting paid so much!”
Outgoing Tyson Foods CEO Donnie Smith/Twitter
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:
The New Yorker’s James Surowiecki observes that average CEO tenure has fallen in recent decades, driven to a significant extent by boards’ greater willingness to fire CEOs over poor performance. The “embattled CEO,” he writes, appears to have supplanted the “imperial CEO”of yore:
The breakdown of the old order began more than thirty years ago, but things have accelerated since the turn of the century. The Sarbanes-Oxley Act, passed in 2002, required greater disclosure to investors, and increased the independence of corporate boards. “In the old days, boards were often loyal to the C.E.O.,” Charles Elson, a corporate-governance expert at the University of Delaware, told me. “Today, they’re more loyal to the company.” The rise of activist investors—who campaign aggressively for change when they’re not satisfied with performance—has exacerbated the trend. One study found that when activist investors succeed in winning seats on the board of directors the probability that the C.E.O. will be gone within a year doubles. …
The predicament of modern C.E.O.s may seem surprising, given their prominence and lavish compensation. Top executives everywhere are paid more than they used to be, and the U.S. has led the way; American C.E.O.s earn, on average, two to four times as much as European ones and five times as much as Japanese ones. Yet it’s precisely these factors that make C.E.O.s vulnerable, because the expectations for their performance are higher.
Surowiecki also notes that in the age of social media and the insta-scandal, a CEO can create a PR nightmare for their company with just a few poorly chosen words. He points to recent examples of corporate heads rolling over ill-considered public statements, such as the fall of Saatchi & Saatchi executive chairman Kevin Roberts in late July. Directors may also be more sensitive to the risks posed by scandal-prone CEOs in light of recent research finding that such scandals can have an impact on an organization’s reputation long after the offending executive has been shown the door.