Research: Activist Investment Impacts CEO Turnover
October 3, 2016
CEO Turnover Increases By As Much As 105% When Companies Are Targeted By Hedge Fund Activists.
Hedge Fund Activists don’t have to win board seats to influence change at the CEO level – even at companies where the activists were unsuccessful in gaining board seats CEO turnover increased by 71% over the norm.
Hedge fund activism had a significant impact on CEO tenure. In the twelve months following an activist approach, the sample where board seats were won saw 34.1% of CEOs leave the company. The group with no board seats won saw 28.4% of CEOS out within 12 months, still considerably above the all-company average of 16.6%. On a two years basis, CEO turnover increased more than the standard one year turnover rate for both groups, showing that the activism can have an impact even if the CEO survives the initial campaign.
FTI Consulting researched hedge fund activist campaigns from 2011-2015 identified by Factset’s Shark Repellant Database. Out of the 307 hedge fund campaigns researched, activists attained board seats (either by settlement or vote) in 138 contests and did not attain board seats in 169 campaigns. Activist CEO turnover was determined using employment data from S&P Capital IQ measured from the announcement date of the activist campaign. Average CEO turnover was provided from PWC research, which measures CEO turnover for 2500 of the largest companies in the world.