Analysis Reveals the True Cost of Executive Turnover

Dov Baron conducting a working session for a group of business leaders.
When a senior leader quits, the effects on the organization can be dramatic. The direct financial cost is one thing. However, the cost of lost opportunities, disruption to key relationships and the potential for knock-on loss of team members, can be even greater.

San Francisco, CA – June 26, 2017 – The published literature surrounding executive turnover has been extensively analyzed by Joseph Rosse, PhD., from the University of Colorado, Boulder. His paper is titled ‘Leadership Retention Literature Review.’

Executive turnover is a critical problem that strikes even the highest flying, successful companies. While they are two of the most successful companies of all-time, Amazon and Google rank #2 and #4 respectively on Payscale’s list of companies with the shortest tenure.

Rosse notes that opinion leaders in HR have long called for a better understanding of how to retain CEOs and other top executives, due to concern about churn in the executive suite impairing organizational effectiveness.

In the introduction to his report, Rosse states “… it is evident from a review of the literature that turnover of top leaders can be very costly, not only in terms of direct costs, but particularly in terms of disruptions of the status quo. 

“One foundational conclusion is that concerns about leadership succession should be addressed in terms of an overall talent management program rather than in more narrow terms of executive retention.“

The publishers at Law.com have also highlighted the heavy financial cost of turnover. They found that “… the total cost of losing a lawyer can reach 1.5-2 times annual salary.” It’s easy to imagine the cost of replacing key leaders in a firm could be significantly higher, and have longer term impact.

Rosse agrees the costs are to be significantly higher for the loss of a CEO or other top members of the management team. He references one study where, “estimates range as high as a rather incredible estimate of 40 times base salary for executives earning $100,000 – $250,000.” He also cites a study that highlights a different type of potential loss, it noted, “the departure of a CEO may be perceived by competitors as a period of vulnerability to be exploited aggressively.”

Leadership and loyalty expert Dov Baron says, “The real problem is when a leader quits unexpectedly, because it actually magnifies all of the costs and ramifications of replacing them.”

He says surprise departures can be prevented with an optimized talent management plan.

“In 9 out of 10 cases, the person considering quitting won’t tell anyone within the organization, because even the best HR person is seen as one of them — the group she’s thinking of leaving.

“A key benefit of implementing your talent management plan with a specialized consultant – is that your team members are more likely to share their truth with an outsider. The consultant has no inherent bias,” says Baron. 

And according to Baron, there should be few surprise departures in a functional leadership team.

“As a senior leader, if you don’t know that someone is considering leaving it’s because they don’t feel safe to discuss the issues bothering them. 

“Once an individual has worked out that ‘it’ (whatever it is for them) can’t be discussed and is therefore not going to change, they’ve reached a stage of hopelessness about the situation. That’s the final stage in their decision-making process. “

Baron explains that on the surface, the solution is for all members of the leadership team to feel and know that they are heard, that they are valued, and have a belief that things can and will change. That is the easier part of the work. He says the harder, though more beneficial work to do for long-term success, is achieving an alignment of values and purpose.

By way of example, he describes working with a financial services client recently.

“There was a culture issue that was not being addressed. It was becoming worse and was holding the company back from revenue growth that they had envisioned and planned for.

“Through our work, we discovered that a senior partner was considering leaving the business.  

“No doubt this would have had a disastrous effect on the business and the team.  Communication breakdowns and an inability to deal with conflict constructively were sabotaging business development efforts and limiting their growth.

“By surfacing and addressing the issues, they could work through residual conflicts from the past and collectively discover their purpose, and build their mission and vision for the future,” he said. 

The work had other unforeseen, though beneficial outcomes, said Baron.

“They adopted some of the active listening and communication practices we’d worked with the leadership team to use in-house, with their client-facing teams. 

“New business is exploding now and clients are referring more ideal-clients than ever before. They’re now exceeding growth and profitability targets and everyone on the leadership team is aligned fully with the company’s purpose and values.” 

Baron says the corporate clients he works with are able to make similar breakthroughs, once the invisible factors holding them back have been revealed and leaders are pulling in the same direction.

For more information on Dov Baron, visit: http://fullmontyleadership.com/

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