In recent months, chief executives have resigned in droves--a byproduct of the cooling economy and heightened expectations of investors. The trend is particularly intense at technology companies, where executives who fail to deliver stellar quarterly performance may get the boot after as little as six or nine months at the helm.
On Wednesday morning, chairman and CEO Robert Knowling resigned from broadband services provider Covad Communications. Knowling, who quit two weeks after the company reported a wider-than-expected third-quarter loss, is one of scores of executives to resign amid slumping stock prices and disappointing financial performances in the technology sector.
Others have given up the helm as they sought to be less involved in day-to-day operations.
A record 129 CEOs announced their resignations in October--an average of nearly six per day, according to a new study by outplacement firm Challenger, Gray & Christmas.
That's a 25 percent jump since September, when 103 CEOs quit. And it's a 115 percent surge since October 1999, when a scant 60 CEOs departed.
A total of 350 CEOs announced departures from August to October. The average tenure of exiting CEOs, based on October announcements that identified length of service, was 6.3 years.
Leading the resignation charge were chief executives at e-commerce companies. According to the study, 25 chief executives of dot-com companies resigned last month.
By contrast, only 19 fled companies in the services sector, which ranked No. 2. Sixteen left computer companies, which ranked No. 3.
Even lauded executives such as Hewlett-Packard CEO Carly Fiorina have become the targets of investor ire in recent weeks.
Besieged by shareholders skeptical of the company's $18 billion plan to purchase the consulting wing of accounting firm PricewaterhouseCooper, a contrite Fiorina announced Tuesday that the computer giant is "re-examining every aspect of the transaction." Her words were a stark contrast to the executive's typical hard-charging forcefulness.
Although it may be difficult for Fiorina to retain the good graces of shareholders eager for immediate returns, other executives face even more pressure. Outplacement expert John Challenger, author of the study released Tuesday, said e-commerce CEOs are under harsher scrutiny than those in any other sector.
In recent weeks, a series of executives have bolted from e-commerce companies as stocks have bottomed out with new 52-week lows and funding for private companies has dried up.
Chief executive Rebecca Patton quit the top spot at wedding-planning sites DellaWeddings and WeddingChannel.com last week. Also last week, online greeting card company Egreetings Network laid off 60 employees to cut costs, and CEO Gordon Tucker stepped down.
Although the vast majority of executives voluntarily resign and are not fired, some are forced out. The job security of the prototypical dot-com CEO--the young entrepreneur who starts a company and then becomes its chief executive--has become precarious, Challenger said.
"They're no longer owners of the company in many cases--it's investors, and they're seeking out people with business-building skills to make these companies profitable," Challenger said. "The founders don't have the experience of having been through that before. It's like changing baseball managers--they're bringing in someone better suited for the task at hand."
Many dot-com CEOs say they're leaving because they're burned out; the Silicon Valley work ethic requires executives to put in 12- to 15-hour days. The increasingly international nature of e-commerce means that many executives spend more time in videoconferences and on airplanes than with friends and relatives.
"I've been doing this for 15 years. I think I deserve a break," Schrock said when he left AltaVista. "I honestly will spend six to 12 months with my family."
But another factor also makes it easy for chief executives to resign: juicy severances.
Lucrative exit packages emerged as standard practice in the '80s, considered a "poison pill" tactic to scare away takeovers--an expensive penalty that the acquiring company would have to pay if it wanted to shuffle the management ranks.
But the parachutes continued to grow throughout the '80s and '90s, even as the threat of hostile takeovers faded. Dubbed "platinum parachutes," senior-level severance packages ballooned to staggering proportions in the mid- to late 90s.
In August, Richard Cheney left oil-services company Halliburton to focus on his vice presidential bid with Texas Gov. George W. Bush. His resignation triggered a retirement package with stock options worth more than $13.6 million, according to filings with the Securities and Exchange Commission. Cheney's annual salary was $1.3 million, and he earned $3 million when he sold Halliburton in May.
Michael Ovitz became second-in-command to Walt Disney chairman Michael Eisner in 1995. He stayed for 14 months before quitting, triggering a severance package worth $140 million. Shareholders immediately sued Walt Disney for the enormous parachute, which investors decried as an irresponsible use of company profits.
Regardless of whether such packages are sensible, virtually all senior-level executives negotiate lucrative exit packages when they assume the reins of a new company. They say the huge sums are justified because fickle shareholders may oust them for factors beyond their control--such as a sour economy or a bearish stock market.
According to Howard Golden, principal in the executive compensation consultancy William M. Mercer, the typical CEO contract includes a severance package roughly equal to three times the executive's annual salary and annual bonus. (If the executive's parachute is worth significantly more, the IRS may levy excessive taxes on both the corporation and the individual.)
Such comfortable parachutes allow many executives to become venture capitalists, willing to park their cash in underfunded start-ups in the Silicon Valley, Israel or other technology hot spots. Oracle president Ray Lane fled the database giant in July and resurfaced a few days later as a general partner at Kleiner Perkins Caufield & Byers.
Taking a break
But ousted CEOs are increasingly ditching the working world altogether--or at least taking a year or more off to contemplate their future.
"Many go away with such extraordinary packages, and their job is so precarious and they become scapegoated and besieged," Challenger said. "Many say, 'Enough. I'm going to go live on my yacht or, if that's not realistic, just take it easy for a while.' There's an archetype of the 21st century CEO who says, 'I made lots of money and now I'm going to do something good in the world or just relax.'"
The tight job market also makes finding a new job easy--especially for seasoned managers. Employers may question the motives of entry-level workers and middle managers who quit before securing another job, but recruitment experts say senior-level executives don't have such stigma.
"If you really have the meat in your resume and have what it takes, it doesn't matter if you're not working now," said Lawrence Jasinover, director of information technology for New York-based executive search firm Stephen Bradford Search. "If you're trying to make it up the ladder and you quit, it looks poor. Executives don't have a scarlet letter, so to speak."