When Donald Trump mirrors Elon Musk: The case of executive turnover
- With former Director of National Intelligence Dan Coats' resignation Sunday, the Trump administration continues to see record amounts of turnover among high-ranking officials.
- Turnover, though not necessarily a bad thing in industries like fast-food and retail, is always costly for companies. US employers pay $15,000 on average to replace a worker, according to The Work Institute.
- When Uber saw many executives leave the company, it made strides to regain public opinion. Tesla, like the White House, does not appear to make any changes despite the high rates of executive turnover.
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If the White House were a major corporation, the executive turnover would have investors shaking.
The now former Director of National Intelligence Dan Coats recently joined 48 other Trump administration executives in leaving their positions, per the Brookings Institution. The think tank calculates that something like 75% of influential executive office positions have turned over since Trump took office, either by way of promotion or resignation. In total, the Trump administration's senior turnover is the highest of any president in the last hundred years.
In general, when senior members leave an organization, morale dips, as workers typically stop working until a new leader arrives with their set of goals and expectations. Investors, too, worry when executives depart soon after a new CEO takes helm, according to research from business advisory firm Gartner.
"Everyone sits around and waits until there is a new person in charge," Brian Kropp, chief of HR research at Gartner, told Business Insider. His research finds that 64% of employees report waiting to be told by new leaders where to direct their efforts after a senior executive departs, and 71% waste time with unnecessary assignments within the time it takes to replace them.
"That waiting creates more problems," he added: "Investments aren't made, decisions aren't made."
Turnover: What's normal, what's alarming
Turnover itself is not always a measure of bad company performance.
For industries like fast food and retail, high turnover is to be expected: anywhere from 60% to a whopping 100% of employees in these sectors will leave in a year, the consultancy Compensation Force has found. Nationwide workplace turnover rates are at an all-time high, and employees for prominent companies like Amazon and Google only stick around for about a year on average. Federal government jobs typically see the lowest rates of turnover - with just 1.3% of employees leaving in a year.
Companies pay a price when an employee leaves. On average, US employers pay $15,000 to replace a worker, according to The Work Institute's 2019 Retention Report. There are the overhead costs of hiring a recruiter, paying for a drug test, and other onboarding and hiring costs that can amount to six to nine months of salary at the particular position.
The case of leadership turnover: Uber, Tesla, and the White House
Not all companies react the same to high rates of senior executive turnover. Uber faced a crisis in 2017 after numerous scandals caused 15 execs to depart, including CEO Travis Kalanick. The company made major outward changes led by a new public face, CEO Dara Khosrowshahi.
Tesla, on the other hand, has executives leave at much higher rates than other major companies, the most notable recent departure being long-tenured CTO JB Straubel. Yet Tesla continues to chug along, due in part to CEO Elon Musk's optimism coupled with his outward lack of worry when executives leave, Anat Lechner, a professor of business management at New York University, told Business Insider.
Musk and Trump, who have senior-level talent leave frequently, face risks when leaders walk out the door. The Work Institute estimates it takes one to two years for a senior manager to become fully productive due to the time it takes to learn the ins and outs of the company.
"Good talent take their ideas and capabilities with them," Lechner said. "And their work, loaded on others, is never well-performed."
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