CEO dismissals and other forced departures reached record levels last year, according to the fourth annual survey of CEO turnover at the world’s 2,500 largest publicly traded corporations released today by strategy and technology consulting firm Booz Allen Hamilton. The study also found that boards of directors in North America are the slowest to remove underperforming CEOs, while boards in Europe are the quickest.

The study comprehensively examines the linkages between CEO tenure and corporate performance, comparing CEO turnover in major regions and in specific industry sectors. Among the findings:

• Globally, performance-related successions increased 44% from 2003, and represented 31.4% of all CEO departures in 2004. Overall, 14.2% of chief executives at the world’s 2,500 largest public companies left office in 2004, compared to 9.8% in 2003.
- The rate of CEO dismissals has increased by 300% from 1995 to 2004.
- In 2004, 42% of CEO successions at European companies were related to performance, compared with 31% in the U.S.

• Overall, underperforming CEOs were removed after an average of 4.5 years in 2004. In Europe, CEOs removed for poor performance were in office for an astonishingly brief 2.5 years. Boards in North America were the slowest to remove underperforming CEOs, at 5.2 years.

• Regionally, the succession rate was highest in the Asia/Pacific region (excluding Japan), where 17.5% of the largest companies changed their CEO – a 230% increase over 2003. The next highest CEO succession rate was in Europe, at 16.8%, followed by Japan at 15.5% and North America, at 11.7%.

The firm’s study, “CEO Succession 2004: The World’s Most Prominent Temp Workers,” is being published in the Summer 2005 issue of strategy+business, Booz Allen’s quarterly thought leadership magazine, which goes on sale on newsstands in June.

The study’s results reveal a growing haste to remove chief executives who fail to deliver strong results in the first few years of their tenure. “Business has entered the era of the short-term chief executive,” notes Charles Lucier, senior vice president emeritus of Booz Allen Hamilton. “The age of the ephemeral CEO is here.”

In fact, CEO turnover now matches the normal attrition rate for all employees. According to quarterly surveys by the research publisher BNA Inc., the typical employee turnover rate in the U.S. is about 12% per year, excluding layoffs and temporary employees. At 11.7%, the total rate of U.S. CEO departures in 2004 is equivalent to the overall rate of U.S. employee turnover. “From the perspective of turnover, the CEO is just another employee,” Lucier said.

The study reveals an unintended consequence of shareholder activism: an even greater likelihood that executives will focus on delivering short-term results...