Facing the worst economic crisis since the Great Depression, corporate boards in North America and Europe are holding fast to their current CEOs, finds Booz & Company in its 2008 annual survey of CEO turnover. The decline in succession rates in these two regions contrasts with the slight rise in chief executive departures globally. The financial services and energy sectors, most affected by the turmoil of 2008, saw outsized increases in CEO exits spurred not only by performance, but also by government interventions and volatility in commodity markets, respectively.
Now in its ninth year, Booz & Company’s study of global CEO succession patterns examines the degree, nature and geographic spread of leadership change among the world’s 2,500 largest publicly traded companies. Included this year for the first time is data on the incoming class of CEOs that sheds light on the career paths of executives who advance to the top of their organizations.
The Booz & Company study concludes that the nature of the recession is leading boards of directors of Western companies to stick with the leaders they know. CEO departures fell 0.5 percentage points in North America and 1.9 percentage points in Europe in 2008 over 2007, while globally that figure climbed 0.6 percentage points. Conflict-related departures, where CEOs and boards parted ways over differences in strategic direction, also fell in North America and Europe, by 0.3 and 0.2 percentage points respectively.
Among the key findings in the report:
Additional study findings:
The “insider” advantage. Among new CEOs, “outsiders” – those brought in from outside to lead the company – comprised about 24% of the incoming class, compared to 76% who were “insiders,” promoted from within. Further, boards now appear to be “road-testing” potential leaders as chief operating officer or chief financial officer before giving them the wheel; 15% of new insider CEOs were auditioned, meaning they joined the company they now lead within the past three years.
International, but not multicultural. Although 52% of incoming chief executives have previously held an international title, just 13% hail from countries outside the company’s home nation. All but four of the 361 new CEOs are men, despite at least half of developed nations’ workforces being made up of women.
Resurgence of the “apprentice” model. Half the incoming CEOs in planned successions assumed office having been apprentices, as their predecessors ascended to the Chairman role. This trend grew profoundly in North America, where 2008 saw 57% of new CEOs taking office in an apprenticeship situation, 20 percentage points above the region’s historical average. While the apprentice model has always characterized Japanese businesses – with 82% of that country’s outgoing CEOs over the 11 years studied falling into that pattern – it is unusual in North America, which typically sees just 42% of outgoing CEOs having been apprenticed in the same period.
North American CEOs seen safest. CEO tenure in North America is the longest it has been since 2000. Outgoing CEOs in the region enjoyed a median tenure of 7.9 years in 2008, versus 7.2 years in the 11 years Booz & Company has been analyzing data.
Seven actions for the New CEO. The report outlines seven steps that today’s freshman CEO class needs to take to steer a course through the current turbulence and position their companies for longer term success. Among the steps are resetting expectations of how the business will work, affirming or changing the leadership team within 60 days, keeping an ear to the market through customers and suppliers, and engaging the board around its expectations.
Download “CEO Succession 2008: Stability in the Storm.”