Booz Allen Hamilton: Half of all Chief Executives are dismissed from office, but those who can deliver results are in greater demand than ever (page 1 of 2)

The year 2005 saw one in seven companies around the world make a leadership change, compared with only one in eleven a decade earlier. These dismissals of a company's top executives were almost always the result of one thing: angry investors.

Why is this occurring? Booz Allen Hamilton's study found that one of the biggest reasons was a change in the laws governing corporate control in response to massive corruption cases of corporations in North America and Europe. The result has been board of directors eager to shift the blame to the CEO, creating a conflict that usually ends in dismissal of the chief executive.

"This will have a profound affect on the Middle East," said Karim Sabbagh, Vice President of Booz Allen Hamilton. "Though the governance changes in America and Europe don't apply directly on this region of the world, they affected all major corporations. And any changes of this magnitude are going to have dramatic affects on every part of the world where a corporation has a presence, and that includes the Middle East. Since the UAE is more directly involved in the world of business than other areas of the Gulf, there is going to be a considerably stronger impact."

The study by Booz Allen Hamilton came away with some surprising observations:

• Dismissal was so common in the 2005, that a CEO prematurely leaving was just as likely to occur as the CEO's leaving due to retirement. Fully half of CEO departures in both 2004 and 2005 came from dismissals. These dismissals were usually the result of poor performance or mergers.

• Another observation of the study was the fact that "repeat chiefs" were a growing factor. "Repeat chiefs" are defined as CEOs who were now heading their second or third company. More than one out of eight dismissed CEOs had also been the CEO of another company.

• Outsider CEOs, i.e. CEOs hired from outside the company, tended to explode in their first two years in the company, and then peter out rapidly. During their initial successful two year period however, they produce four times as high of returns as a CEO from who came from within the company. But these returns are only temporary: an insider CEO will produce better results over the long term.

• CEOs who were never chairmen previously performed better than those who were.

• The former CEO should not be allowed to remain as chairman. The CEO who is selected to work under that chairman usually performed dismally.

• North America, Europe and most of Asia (excluding Japan) all saw record turnover of their CEOs in 2005 or 2004.

The rate of turnover for the world was 15.3 percent in 2005, which was 70 percent higher than the rate ten years ago. In North America, Europe and Japan, the biggest reason for that turnover was that they were forced out, either because of a merger or because of poor performance.

"A large reason for this strong rate of turnover has been due to the anger of shareholders," said Paul Kocourek, Senior Vice President with Booz Allen Hamilton in San Francisco. "Because shareholders in the US and Europe have been given through legislation increased abilities to remove their CEO in the case of poor performance, we are seeing these shareholders acting on their newfound abilities. That means more CEO dismissal, and it isn't going to slow down anytime soon."

The firing of underperforming CEOs quadrupled in a 10 year period ending in 2005.