The Bottom Line: CEO Departures Reveal a Harsh Reality
As the corporate world kicks off December, two high-profile CEO departures have sent shockwaves through the industry. Stellantis CEO Carlos Tavares and Intel CEO Pat Gelsinger have both stepped down, citing clashes with their respective boards. But beneath the surface, a common thread emerges: underperforming stock prices.
The Unforgiving Market
In a year where the S&P 500 has surged over 25%, Stellantis and Intel stocks have plummeted, with losses of 47% and 50%, respectively. This drastic underperformance has made it impossible for the CEOs to retain their positions. As Michael Farr, chief market strategist for Hightower Advisors, puts it, “If a company’s figurative boat is sinking while most others are enjoying a rising tide, corrective action must be taken by the CEO and or the Board.”
The Rise and Fall of Industry Leaders
Both Tavares and Gelsinger were seasoned executives with decades of experience in their respective industries. They were tasked with turning around legacy brands facing existential challenges. However, their inability to stem the tide of declining stock prices ultimately led to their downfall.
The ESG Movement and Shareholder Primacy
In recent years, the idea of shareholder primacy has come under scrutiny, with the ESG movement pushing for corporations to prioritize stakeholder interests over shareholder gains. The Business Roundtable’s 2019 statement of purpose, signed by nearly 200 CEOs, emphasized the importance of serving all stakeholders, not just shareholders. However, in practice, the stock price remains the ultimate scoreboard for CEOs.
A Tale of Two Companies
Google and Facebook, now Alphabet and Meta Platforms, respectively, have demonstrated that companies can stand for more than just their income statements. With market caps of $2.1 trillion and $1.5 trillion, respectively, these tech giants have earned the benefit of the doubt from investors. Their ability to balance stakeholder interests with shareholder value has been a key factor in their success.
The Takeaway
The departures of Tavares and Gelsinger serve as a stark reminder that, in the end, it’s the stock price that matters most. While companies may pay lip service to stakeholder interests, the harsh reality is that CEOs are ultimately judged on their ability to deliver returns to shareholders.
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