05/24/12
The Heat is (Back) On: CEO Turnover Rate Rises to Pre-Recession Levels, Finds Booz & Company Annual Global CEO Succession Study

New York, NY, May 24, 2012 — As the worldwide economy began to recover last year, CEO turnover at the world’s largest 2,500 public companies returned to rates seen during the pre-recession years, according to Booz & Company’s 12th annual CEO Succession Study. In 2011, 14.2 percent of CEOs at the world’s largest companies were replaced, which matches the historical seven-year average of just more than 14 percent, but is sharply higher than the 11.6 percent turnover rate in the crisis year of 2010.


“Boards are more likely to keep their chief executives during times of economic uncertainty in order to maintain stability, but they are more willing to make a leadership change when macroeconomic strength returns and company outlooks improve,” said Per-Ola Karlsson, Booz & Company Senior Partner, Managing Director of Europe. “That the overall turnover rate is back to historical levels suggests that some companies are making a real effort to rethink strategy and drive performance.”

Booz & Company’s annual study of worldwide CEO succession patterns examines the degree, nature, and geographic distribution of chief executive changes among the world’s 2,500 largest public companies. This year’s report, “The New CEO’s First Year” reveals the challenges for the new class of CEOs who came into office in 2011, analyzes trends in global CEO turnover, and distills important advice from veteran CEOs. The report will be published today, and in the Summer 2012 issue of strategy+business, Booz & Company’s quarterly business and management magazine.

Among the report’s key findings:

  • CEO turnover rate is highest at the largest companies. CEO turnover rate was highest among the top 250 companies by market capitalization—an average of more than 14 percent over 12 years—and nearly 2 percentage points higher than among companies ranked 251–2,500 by market capitalization between 2000 and 2011.
  • Insiders continue to bring higher returns. Between 2009 and 2011, outgoing insider CEOs—that is, those who had risen up through the ranks at the same company—delivered a 4.4 percent annual shareholder return above local market indices, on average, compared to just a 0.5 percent return from outsiders.
  • Appointment of outsider CEOs remains high. In 2011, 22 percent of new CEOs came from outside their organization. This is consistent with 2010 and 2009 findings, but is significantly more than the 14 percent of outsiders appointed in 2007. The rate of appointments of outside CEOs in North America was 22 percent in 2011, while in western Europe the rate rose to 31 percent in 2011, up from 24 percent in 2010 and 14 percent back in 2007.
  • The Chairman–CEO relationship evolves. In North America, 37 percent of outgoing CEOs in planned successions were appointed chairman of the board to act as a guide to the new CEO in 2011—a recognition of the pressures facing new chief executives. In Japan, the practice is more frequent: 63 percent of companies appointed the outgoing CEO as chairman; in Europe, only 17 percent of companies did so.
  • Joint Chairman–CEO appointments continue to decline overall, despite a slight rise in 2011. Even with 2011’s slight increase, the practice of a combined chairman–CEO appointment has declined over the past 12 years, from 34 percent in 2000 to 14 percent in 2011 globally, on average. The declining frequency of combined appointments was most pronounced in Europe, where such appointments fell from 53 percent in 2000 to just 17 percent in 2011.

Ken Favaro, Booz & Company Senior Partner, said: “The rate of outsiders appointed as CEO is demonstrably higher than it was before the recession began, which suggests that companies are seeking leadership experience from outside their industries and markets. However, our study finds that insider CEOs continue to perform better, bringing higher shareholder returns and serving longer tenures. These countervailing trends—better-performing insiders and increasing numbers of outsiders—are currently at a crossroads and should be a consideration for any board thinking about making a change.”

First Year at the Top: From CEOs Who Have Been There
This year’s report includes results from detailed interviews with 18 CEOs around the world and across a variety of industries, and it reveals the untold story about how difficult that first year at the top can be. Among the many suggestions these executives had for new CEOs: Make necessary personnel changes swiftly, but change strategy slowly while establishing trust through transparency.

““As the rate of CEO turnover returns to historical levels, we are seeing executives face more intense pressure to perform during their first year,” said Gary Neilson, Booz & Company Senior Partner. “Our roundtable of 18 CEOs offers some practical guidance for new CEOs and allows them to learn from their lessons as they look back on navigating their first year. These are gems of unvarnished advice.”

The full report and its methodology can be downloaded by visiting the Booz & Company website www.booz.com. A supplementary article, “Navigating the First Year: Advice from 18 Chief Executives,” contains additional insights from the 18 CEO interviews, and can be downloaded here >

Contact Margaret Kashmir
Global Media & Communications
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