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More and more CEOs are checking out of their jobs earlier than ever before – a study by Strategy&, PwC’s strategy consulting business, found CEO turnover at the world’s 2,500 largest companies soared to 17.5% in 2018 — 3 percentage points higher than the 14.5% in 2017 and above the norm for the last decade.
The reasons for their exits remained quite standard, i.e. planned, forced, and M&A-related (of which forced exits comprised 20% of all attrition). However, the reasons that CEOs were fired were different.
For the first time in the study’s history, more CEOs were dismissed for ethical lapses than for financial performance or board struggles. (The study defines ‘dismissals for ethical lapses’ as the result of a scandal or improper conduct; examples include fraud, bribery, insider trading, environmental disasters, inflated resumes, and sexual indiscretions.)
Notable trends from the study on CEO turnover (a total of 5,253 turnovers) are pulled out below.
1. Regions, industries, and demographics
- CEO turnover rose notably in every region in 2018 except China, and was quite high in Brazil, Russia, and India (21.6%), while the lowest was in North America (14.7%).
- Among industries, turnover was highest in communication services companies (24.5%), followed by materials (22.3%), and energy (19.7%), while healthcare saw the lowest CEO turnover (11.6%).
- The share of incoming outsider CEOs in 2018 was the lowest since 2007, at 17%. Further, for the first time in six years, insiders outperformed outsiders.
2. Women CEOs
- The share of incoming women CEOs was 4.9% in 2018, down slightly from the all-time high of 6% in 2017, but it continues an upward trend from the low point of 1% in 2008.
- The largest share of women CEOs in 2018 resulted from sharp increases in Brazil, Russia, India, China, and “other emerging” countries.
- Among industries, utilities had the largest share of incoming women CEOs (9.5%), followed by communications services (7.5%) and financials (7.4%).
- The lowest share? No women became CEOs of industrials or IT companies in 2018.
3. Long-serving CEOs
- As one would expect, long-serving CEOs generally deliver higher shareholder returns than shorter-serving CEOs, though their performance, on average, tends to be good rather than great.
- Successors to long-serving CEOs, however, face a difficult path. Successors turn in significantly worse financial performance, generally have shorter tenures, and are much more likely to be forced out rather than to depart via a planned succession.
- Long-serving CEOs (tenures of more than 10 years) are most common at North American companies – 30% of the CEOs in North America were long-serving, compared with 10% for the BRI countries (Brazil, Russia, and India), 9% for Japan, and only 7% in China.
- Among industries, CEOs in healthcare were the most likely to be long-serving (28% probability), followed by those in IT (26%).
- The median tenure of a long-serving CEO is 13.9 years, compared with 4.0 years for other CEOs — more than three times as long. One likely reason for these longer tenures is that 46% of long-serving CEOs hold joint CEO and board chair titles by the time they depart.
If you are a potential successor, you should:
1. Build your own brand. You can never truly replace a charismatic or legendary leader, so don’t try to emulate the outgoing CEO’s style. If you’re an insider, you already know everyone and everything in the company, and likely have filled many different roles. But you should spend time with external stakeholders building credibility.
2. Set the agenda. One of your key tasks as the new CEO will be to establish a new agenda and reshape the future. This should start with a thorough review of all operations and strategy. And it can continue by breaking the frame (for example, by changing some fundamental aspect of the company’s business model), resetting expectations, and integrating the company parts with the whole.
3. Find the right pace for change. Moving too quickly can be as problematic as moving too slowly. Setting the right pace requires resisting arbitrary pressure for you to chalk up fast wins, while moving rapidly enough on the company’s critical priorities to keep things moving forward.
4. Engage the board as a strategic partner. CEOs must leverage the board as a strategic asset, tapping into this insight and experience. In turn, boards today need to own strategic decisions jointly with the CEO; they no longer simply ratify them at an annual off-site meeting.
5. Get the culture working with you. As Jon Katzenbach notes, the informal, emotional elements of the organisation are as important as the formal, rational elements. A CEO must understand how these operate and use the organisation’s hidden strengths to move the company forward.