The 15th Annual CEO Succession Study
Now in its 15th year, PwC’s Strategy& study into CEO successions and success found 2014 was a busy year for change at the top in Australia, with approximately 35 percent more CEO turnover events than the global average. With such movement, we have seen a shift in the diversity and length of tenure for chief executives locally – Australia’s newest top leaders come from more geographically diverse origins than other leading global firms; are amongst the youngest; and include the greatest proportion of females globally.
However, while positive strides have been made, this year’s study also shows great room for improvement when it comes to shareholder value and institutionalising the CEO succession process. Looking at the world’s top 2,500 public companies, we’ve assessed how much progress companies have made toward better CEO succession planning this year, how much value some companies are leaving on the table as a result of poor planning, and the potential value of further improvement.
Change at the top is destabilising for any company. CEO turnovers lead to shifts in the top team, changing corporate priorities, and an inward focus at most companies. These are likely causes for the drop we see in median TSR in the year leading up to a CEO turnover (falls to -2.3 percent) as well as the year after it (a fall of -3.5 percent).
When companies are forced into turnovers, the drop in median shareholder returns is even more dramatic: globally we saw a fall to -13 percent return in the year leading up to the CEO change and just -0.6 percent in the year after. We estimate that all this means companies undergoing forced turnovers have foregone some AU$126 billion in total each year – roughly AU$2 billion more for each company than if their turnovers were planned.
This has a real financial impact on Australian business: companies undergoing a forced turnover demonstrated significantly greater loss in shareholder value in Australia compared to those leading global companies undergoing forced CEO turnover during the same period. We estimated this loss to total around AU$8 billion in Australia in 2014. This suggests an even greater need to institutionalise the process of planning for succession in Australia, and taking the necessary formal steps to increase CEO tenure by Australian companies.
There is good news: during 2014, leading Australian companies demonstrated the ability to attract a talented and differentiated incoming class of CEO. Australia’s newest top leaders come from more geographically diverse origins than other leading global firms, are amongst the youngest (with a median age of 51), and include more female members than their global counterparts. The median tenure of Australian CEOs also increased by more than 10% – above the long run average – showing promising signs that CEOs are becoming better equipped and supported to carry out their role here in Australia.