CEOs at risk.

The parade of CEOs heading for the block gets longer every day. What's behind directors' increasing itchiness drop blade?

Rallying behind a battle cry of "Joe must go," Kmart's large shareholders pushed CEO Joseph Antonini out the door in March. A month earlier, Morrison Knudsen's directors withstood CEO William Agee's impassioned pleas for just one more chance and fired him after a three-and-a-half-hour board meeting. Louisiana-Pacific's board stunned CEO Harry Merlo in July when it asked him to resign - immediately. Over the past few months, similar scenarios have been played out at Genentech, W.R. Grace, SPX, S.G. Warburg Group plc. And the list goes on.

Almost daily during the last three years, headlines have trumpeted yet another involuntary CEO turnover. Though no definitive evidence currently exists, a variety of indicators seem to point to an increasing number of CEOS facing the block. Executive turnover in general is said to have increased during the past three years at more than a fourth of the 1,188 U.S. companies surveyed by New York-based management consulting company William M. Mercer.

Professor Edward J. Zajac and doctoral candidate James Westphal at Northwestern University's Kellogg Graduate School of Management studied CEO succession between 1987 and 1992 at 413 U.S. industrial and service firms ranging from $487 million to $63 billion. He found 54 instances of turnover in 1992 compared with 37 in 1987. In CE's compensation survey this year, COMPO Consulting discovered that 39 of last year's 238 CEOs no longer held the job by the end of 1994. And CE's own monitoring of nationally published reports shows a definite upswing in CEO transitions during the past year and a half.

While most of these statistics do not reveal why the executives left, media coverage of the events leaves no doubt that more than a few were involuntary. Not only that, but experts estimate that CEO tenure has decreased from roughly 10 years to seven and may drop further before it bottoms out around the year 2000. "It's a little more tenuous to be a CEO today than it was five years ago," says Charles Haggerty, CEO of Western Digital, a computer disk drive manufacturer in Irvine, CA.

So what's behind this shake-up in America's corner offices? Boards, for one - increasingly powerful boards that are impatient with subpar performance and fear the resulting white-hot media coverage and potential shareholder lawsuits. Shareholders, for another - particularly large institutions, whose expectations of management/company performance are ratcheting up, often based on analysts' overly optimistic earnings predictions.

"Today, there is much more of a focus on results; when a company doesn't live up to expectations or perform on a par with the rest of the industry, both the board and shareholders become restless and uneasy," says Kai Lindholst, managing partner at recruiting firm Egon Zehnder in Chicago. "With markets and technology changing so rapidly, a company can be irreparably damaged by a CEO who can't realize its full potential."

In some ways, shareholder pressure is an extension of the tension greedy raiders generated in the 1980s. What couldn't be accomplished through hostile takeovers is now being attempted through demands for better financial performance. As such, shareholders are holding directors' feet to the fire. Though the battle remains the same, the combatants have changed: The board and the CEO have become predator and prey. And this time, shareholders, or their institutional investor surrogates - the agitators - benefit first. Before, they often were used as an excuse to change management, but didn't always benefit directly.

"In many instances, shareholders are saying 'We pay you a lot of money and expect to see our socks blown off,'" says John T. Thompson, a partner at New York-based executive search firm Heidrick & Struggles.

Instead, during the last part of Antonini's tenure, Kmart's sales dipped 5.2 percent in the fourth quarter ended January 25 to $10.44 billion, amid investor complaints that the retailer had been unable to deliver the right merchandise at the right price and that its inventory systems were inefficient. At Morrison Knudsen, shareholders watched angrily as Agee ran the company into a fourth-quarter operating loss that board members say is more than $150 million - at least double analysts' projections. And Louisiana-Pacific faces $300 million in liability from environmental violations and fraud lawsuits filed during Merlo's watch.

In cases such as these, the question is: Why did the board wait so long? "Who knows?" says Scott Paper CEO Al Dunlap, a corporate turnaround artist who was brought on board to bolster the company's sagging fortunes. "The bottom line is that the board has to deal with the problem right away. There are no excuses; you can see problems like that coming from miles away - just like the train."

Hardly an industry has been untouched by the turnover fervor. It cuts across telecommunications, automotive, computers, oil, transportation, and finance. It's particularly prevalent in high-tech firms, entertainment companies, and public utilities, according to Richard M. Ferry, chairman of recruiter Korn/Ferry-International in Los Angeles. And the trend probably won't stop at the U.S. "The first big wave comes in the U.S. and then goes overseas," says Dunlap. "This phenomenon is going to happen around the world." Indeed, it already has begun with the ouster of S.G. Warburg's Lord Cairns in Britain, Alcatel-Alsthom SA's Pierre Suard in France, and Daimler-Benz's Edzard Reuter in Germany.

Interestingly, high-profile ousters seem to occur in clusters, as in the cases of Morrison Knudsen, Kmart, and W.R. Grace, whose executives were fired within weeks of each other this spring. "It is either a case of the board having more courage after it sees one big name fired, or the board doesn't want to take any more heat," says Thomas J. Neff, president of executive search firm Spencer Stuart in New York.

"Many CEOs who are fired could do a fine job with the proper governance system," claims Harvard Business School Professor Michael C. Jensen. "They are just the fall guys. This trend will take another 30 years to play out; whether CEO turnover remains high during that time will depend on how we modify our governance systems."

Ferry agrees. "Increased turnover is the result of a revolution in the boardroom. A whole new set of objectives is being used to evaluate CEOs. Boards now are looking for a more participative style of management in extraordinary communicators who can evince trust," he says.

Contributing to the two major reasons behind the increased turnover is a subset of catalysts, which in and of themselves may not be important, but which, when acting together, can turbocharge a situation. For example, when markets change quickly - as in high-tech industries - a new executive with different expertise might be needed. The same holds true as companies continually move into new, global markets. Some boards bring in a "turnaround" artist to fix an ailing company, then replace him or her in a year or two with a longer-term CEO to maintain the momentum. In addition, the growth of executive search/recruitment firms has made the market for senior executive talent more fluid. Recruiters can prey on boards' restlessness, pandering to their vanity and expectations. "You can demonstrate your fearlessness by looking at these candidates we're throwing your way" is the standard recruiters' lure to consider an outside executive.

Meanwhile, has all this turnover helped performance or has it merely been an overreaction by board members? "I think we will find it's a mixed report," says Robert Hallagan, CEO of Heidrick & Struggles. "Obviously, some boards, such as those of Eastman Kodak, Allied Signal, and IBM, are delighted with the results of their moves. And others are not."

Any ideas whose neck might be next on the line? Says Hallagan: "Any CEO who resists change, is complacent, doesn't listen to customers, resists bringing in fresh leadership talent, doesn't have an effective relationship with the board or shareholder groups, and is arrogant during a downturn."

Is your collar starting to feel a little tight?

Lorri Grube is the associate editor at Chief Executive.