*

42% of S&P 500 companies replacing CEO in 2024 had

bottom-quartile returns -Conference Board

*

Boards becoming less patient with undeperformers -report

co-author

*

Companies have maintained traditional CEO recruiting

patterns

-report

By Svea Herbst-Bayliss

NEW YORK, Nov 4 (Reuters) - U.S. companies with lagging

stock prices are now quicker to blame management and fire their

top executive, but the process of finding a replacement has

remained largely unchanged for the last decade, according to a

report released on Monday.

Over the last seven years, financial performance and most

notably a company's stock price have become a stronger predictor

of a chief executive's ability to hold onto the job, research

group The Conference Board found in its "CEO Succession

Practices in the Russell 3000 and S&P 500: 2024 Edition" report.

The latest figures show 42% of S&P 500 companies that

replaced their top executive this year had stock returns in the

bottom quartile of their industry. The number is even higher

among Russell 3000 companies, the index that tracks the

largest 3,000 U.S. companies, with 45% of companies that

replaced CEOs this year posting shareholder returns within the

25th percentile.

In 2017, only 30% of S&P 500 companies that replaced CEOs

had a shareholder return in the bottom quartile, while it was

29% at Russell 3000 companies, the Conference Board data show.

"Corporate boards are clearly becoming less patient with

underperformers," said Blair Jones, managing director at

executive compensation consulting firm Semler Brossy, who

co-authored the report.

A board's sense of urgency for making sure the right person

is leading a company has increased dramatically since the

pandemic as external factors like supply chain disruptions and

geopolitical drama are no longer seen as excuses for poor

returns, the report's authors said.

More notably, fresh investor scrutiny, including from

corporate activists who routinely issue demands for change in

the executive suite, is linking a poor stock price with a CEO's

tenure, the report's authors said.

"Boards often want to get ahead of any activist who may make

changing the CEO one of their first requests," Jones added.

In the last few months, U.S. companies Starbucks ( SBUX )

and Bloomin' Brands ( BLMN ) changed CEOs and Swiss

multinational Nestle replaced its CEO. Activists pushed

for CEO changes at Southwest Airlines ( LUV ), where Bob Jordan

kept his job, and are pressing Air Products and Chemicals' ( APD )

board to lay out a succession plan for its octogenarian

CEO.

Even as boards are now quicker to throw out CEOs at

underperforming companies, the report found that boards have

stuck with traditional recruiting patterns.

They prefer company veterans who are well-versed in the

corporate culture, have shown loyalty to the organization and

could move into the job with minimal disruption.

This year, 77% of new S&P 500 CEOs and 59% of new Russell

3000 CEOs were insiders, the data show. Last year, it was 74% at

S&P 500 companies and 64% at Russell 3000 companies. Nearly half

of the insiders promoted to the CEO previously served as chief

operating officer, president or chief financial officer.

The report shows the number of female CEOs has reached a

historical high of 9.5% in the S&P 500 and 7.6% in the Russell

3000. But all were hired at smaller companies with less than $5

billion in revenue and most were hired in the health care,

consumer discretionary and materials sectors.

"Overall, the outcome of the succession process looks quite

similar to what it has been the last decade, with companies

leaning towards white men in their early 50s who have been chief

operating officers," said co-author and Georgetown University

professor Jason Schloetzer.