Why a growing number of CEOs are stepping down

September 30, 2019 17:38
WeWork's Adam Neumann has stepped down as CEO following the co-working space startup's stalled IPO. Photo: Reuters

In just one day, on Wednesday last week, the chief executives of three global companies – WeWork, eBay and Juul – all resigned. What once seemed bewildering is no longer so. In fact, more than 1,000 large corporations in the United States have seen their CEOs step down year-to-date, the largest number in history.

This is a clear indication that being the CEO is really a tough role when investors are increasingly less patient amid the ever-changing business world.

All of the three CEOs mentioned above have resigned primarily because they failed to hit their targets.

WeWork’s CEO Adam Neumann was ousted, even though who was actually the founder and major shareholder of the mighty unicorn once valued at US$50 billion.

As the world’s largest co-working space operator, WeWork has kept raising capital and burning cash to ramp up its market share. Neumann has promised investors that he would take the company public after establishing its leading position through rapid expansion.

However, investors became less enthusiastic after more startups joined the co-working space business and engaged in aggressive competition.

It also remains unclear when WeWork will be able to make a profit. Its loss doubled to US$1.9 billion last year, from the previous year. And the company’s market value has tumbled to US$10 billion and struggled with a liquidity crunch.

Since existing shareholders including SoftBank no longer wanted to invest more in the company, WeWork became even more desperate to tap the public market for more capital.

However, the market has already lost confidence in Neumann, who was forced to quit as CEO and was to be replaced by Amazon’s former vice president Sebastian Gunningham.

Meanwhile, eBay president and CEO Devin Wenig stepped down over disagreements with the online retailer’s new board. Wenig was appointed chief in 2015 with an annual salary of US$15 million in the hope that he would turn the business around.

The e-commerce company has begun a strategic review of its asset portfolio, including StubHub and eBay Classifieds Group, in order to create value for shareholders. However, the company finds the business performance wouldn’t really justify such high pay for the CEO, and this led to Wenig's departure.

Juul Labs chief executive Kevin Burns stepped down from the tobacco vaping company on Wednesday. The world’s largest e-cigarette company has quickly snapped up market share since it was established in 2015. Tobacco giant Altria took a 35 percent stake in the firm last year, valuing the latter at US$38 billion.

However, regulators around the world have stepped up oversight on vaping products, and Burns was deemed unable to turn around the negative market sentiment. He will be replaced by KC Crosthwaite, chief strategy officer at Altria.

Chief executives of US companies appear to be having difficulties holding their jobs for long periods. It was reported that CEOs of 1,009 US big companies have stepped down as of the end of August, the highest level ever. In August alone, 159 CEOs were replaced.

One of the major reasons is that the US-China trade war and slowing economic growth have posed great challenges for them, said Yale management specialist Jeff Sonnenfeld.

Also, the business environment is changing very fast in the digital era, and top executives have to keep up with the times. Investors are becoming less patient and they want top executives ousted if they fail to deliver performance within one or two quarters.

According to the Greek philosopher Heraclitus, “there is nothing permanent except change”. Entrepreneurs and business leaders will have to get used to it.

This article appeared in the Hong Kong Economic Journal on Sept 27

Translation by Julie Zhu

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BN/CG

Hong Kong Economic Journal columnist