A recent spate of CEO departures, including that of Pat Gelsinger (pictured), who was forced to resign from tech giant Intel last month, may be seen by some as effective corporate governance in action.

But new research suggests directors who take drastic action to change underperforming leaders see a reduction in their own reputations, suggesting doubts about their governance standards.

The view appears in new research from a team of academics, who sought to investigate the consequences of pushing out chief executives.

‘Lasting career implications’

After research looking at turnover in the S&P 1500, the Swiss team, from St Gallen University and the University of Zurich, concluded that ejecting the CEO can have “lasting career implications” for the directors who take part.

“Our results show that the directors involved in forced CEO turnovers are more likely to exit the director labour market.

“Directors who stay in the labour market typically lose board seats within five years of the turnover—primarily at the turnover firms.”

Directors do win new board positions but these “tend to be at smaller, less prestigious firms, suggesting that reputational losses stemming from involvement in a forced CEO turnover adversely affect directors’ labour market opportunities”.

The news may come as a shock to boards who witnessed record levels of CEO turnover last year. In December, headhunters Challenger, Gray & Christmas revealed research showing the US has seen an unprecedented 1,914 CEO exits, the highest figure since 2002 and up 16% on the previous year.

Russell Reynolds, another executive search firm, says CEO turnover has also increased globally, with both the FTSE 100 and S&P 500 looking as if they will top last year’s figures when the data is finally compiled. Russell Reynolds warned companies they would need to “double down” on their succession planning, not just for CEO roles but for the whole C-suite. This follows on from a similar steep rise in global turnover last year.

‘Reputation consequences’

The Swiss team—Felix von Meyerninck, Jonas Romer and Markus Schmid—looked at forced turnovers through the prism of withheld votes during director re-election at company AGMs. Withheld votes in AGM elections immediately after a forced turnover were taken as a measure of “reputation consequences”.

The findings show that withheld votes go up on average nearly 20% for directors involved in a forced turnover. This trend holds for three years after a painful CEO exit.

It seems the punishment is not for all turnovers but only those linked to governance failures associated with “reactive” exiting of CEOs; dismissal during the “most productive tenure phase” of a CEO; and “inadequate monitoring” of CEOs.

The research also shows there appears to be no reputational gain for a forced turnover.

The team concludes that forcing out a CEO is not necessarily a sign of “well functioning” corporate governance. “Instead, our results support an alternative view: depending on the timing and circumstances of the turnover, forcing out a CEO can be perceived as a signal of failure in the monitoring of the CEO and thus be detrimental to a director’s reputation.”