Time for New CEOs: The 2012 Chief Executive Study
Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson

The 2012 Chief Executive Study, "Time for New CEOs," reports the highest number of planned CEO successions at the world’s largest 2,500 public companies in the history of the study and finds that companies often seek familiarity in new CEOs.



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Perspective

Ken Favaro Per-Ola Karlsson Gary L. Neilson

Time for New CEOs The 2012 Chief Executive Study

Authors: Chicago Gary L. Neilson Senior Partner +1-312-578-4727 [email protected] New York Ken Favaro Senior Partner +1-212-551-6826 [email protected] Stockholm Per-Ola Karlsson Senior Partner +46-8-506-190-49 [email protected]

Media Contacts: Abu Dhabi Joanne Alam +961-1-985-655 [email protected] Amsterdam Monique De Meyere +31-20-504-1984 [email protected] Chicago Erin Bowler +1-312-578-4697 [email protected] Helsinki Hanna-Mari Naumanen +358-9-6154-6605 [email protected] London Martina Mazzon +44-20-7393-3251 [email protected] Munich Susanne Mathony +49-89-54525-550 [email protected] Paris Beatrice Malasset +33-1-44-34-3131 [email protected] São Paulo Deborah Frattini +55-11-5501-6290 [email protected] Shanghai Michelle Wang +86-21-2327-9825 [email protected] Sydney Kristine Anderson +61-2-9321-1931 kristine.a[email protected] Tokyo Ayumi Suda +81-3-6757-8683 [email protected]

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EXECUTIVE SUMMARY

In 2012, the world’s largest 2,500 public companies were very active in putting in place the leaders they need: 15.0 percent of CEOs at those companies left office last year, up from 14.2 percent in 2011. This is the second-highest rate of CEO turnovers in the 13-year history of our study, lower only than in 2005. Moreover, in 2012 we saw the largest share of planned CEO successions in all the years we’ve studied. Planned successions (as opposed to CEOs who were forced out or who lost their jobs because of an acquisition) accounted for 72 percent of all turnovers in 2012, up from 46 percent in 2006. This suggests that companies are working more thoughtfully than ever to ensure they put in place new leaders who will best serve the company for years to come. Who are those leaders? For the most part, they are familiar faces: Companies promoted insiders (people already at the company) 71 percent of the time—and a quarter of all new leaders had worked at the same company for their whole career; 81 percent of new CEOs were from the same country where the company’s headquarters was located; and 95 percent were men. Here are some of the main findings of the 2012 Chief Executive Study, Booz & Company’s 13th annual examination of CEO succession trends at the 2,500 largest public companies in the world: • Companies are actively generating CEO successions and working thoughtfully to ensure they get the leaders they need, after a steep fall in turnovers during the recent recession. – In 2012, the 2,500 largest public companies in the world generated the second-highest turnover rate since 2000: 15.0 percent. • With this rate following last year’s 14.2 percent rate, we see CEO turnover restabilizing around its historical level after a significant dip during the recent recession. The 2012 rate is slightly higher than the eight-year historical average of just over 14 percent. • The highest turnover rate in the history of the study was 15.4 percent in 2005, which followed close on the heels of low rates during the recession of the early 2000s. – Companies are increasingly planning their successions, seeking to build on the leadership stability most have enjoyed as the economy has improved. • From a low of 46 percent in 2006, the share of turnovers that were planned has risen steadily, to 72 percent in 2012. This is the highest share of planned turnovers since Booz & Company began the study in 2000. The share of planned turnovers this year may be so high in part because some companies postponed a transition during the worst of the crisis and are now feeling able to manage a change. • Turnovers related to M&A accounted for only 9 percent of all turnovers in 2012, the lowest share ever. This is simply a result of the overall low rate of major deals in 2012. • Forced turnovers, at 19 percent of all turnovers in 2012, are their second-lowest share ever, and the fourth-lowest rate ever. This is another sign that companies are now able to take a thoughtful approach to transitions: They are stable enough to force someone out if they need to, but in general they have the leaders they want or the time to allow a CEO to improve performance.

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• This year we looked in depth at the professional backgrounds of the incoming class of CEOs. The data suggests that the “global CEO” is more mythical than real—indeed, companies often seek familiarity in a new CEO. – With 300 incoming CEOs, this is the largest class since we started our study in 2000. – Most companies are actively focusing on developing the leaders they need: 71 percent of new CEOs in 2012 are insiders—people who were promoted from within. – Though the companies we studied are large ones, most of which operate on a global scale, they tend to stick close to home when picking a CEO. In 2012, 81 percent of companies that hired a CEO chose one from the same country where company headquarters is located, and an additional 9 percent hired a CEO from a different country but the same region as headquarters. – 55 percent of this year’s new CEOs joined their current company from one in the same industry, whether they did so as CEO or in another position. • Another way in which the new class of CEOs is familiar is gender: Only 5 percent of the incoming CEOs in 2012 are women—a notable rise from the 3 percent average over the prior three years, but still a tiny share. • In terms of educational background, 29 percent of new CEOs in 2012 have an MBA. The median age of those with an MBA was 52, two years lower than for those without, suggesting that taking time out to earn an MBA may speed up a career in the long run. • In 2012, the hiring done by the 250 largest companies was a little different from that of smaller ones (the bottom 2,250): The larger companies’ incoming CEOs were more often insiders (83 percent vs. 69 percent), more often had experience in different regions than company headquarters (52 percent vs. 44 percent), and more often had MBAs (41 percent vs. 28 percent).

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11.0 million aölkdfölka 32.8%

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CEO turnover rates are still rising—and more transitions than ever are planned
CEO Turnover Rate by Succession Reason
CEO Turnover Events as % of Top 2,500 Public Companies
Turnover rate 16% 14% 12.9% 12% 10% 8% 6% 4% 6.4% 2% 0% 2000 6.0% 5.0% 5.3% 7.7% 9.2% 6.6% 6.8% 7.2% 9.1% 7.7% 9.8% 10.8% Planned 3.4% 3.2% 10.9% 2.4% 2.4% 10.8% 1.4% 9.8% 1.3% 4.4% 3.2% 4.5% 4.6% 4.2% 14.7% 2.5% 15.4% 14.4% 2.6% 3.2% 3.6% 5.1% 2.2% 13.8% 2.8% 3.4% 14.4% 2.2% 14.3% 1.8% 11.6% 1.8% 14.2% 2.2% 2.8% Forced 2.2% 15.0% 1.4% M&A

30.1%

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• CEO turnover at the 2,500 largest public companies in the world is up considerably, from 14.2 percent in 2011 to 15.0 percent in 2012. The number of CEO turnovers in 2012 (375) is the second-largest in the 13-year history of our study, second only to that in 2005. • The rate of planned turnovers (compared with forced or M&A-related ones) has been increasing over the years and in 2012 reached 10.8 percent (270) of all 2,500 companies we examined, the highest rate ever. – The share of turnovers that were planned has risen steadily from a low of 46 percent of all turnovers in 2006 to 72 percent in 2012. The surge in 2011 and 2012 may be in part because some companies had put off a turnover until they felt stable enough to manage the change. – The low number of large M&A deals in 2012 led to one of the lowest M&A–induced turnover rates we’ve seen (1.4 percent of all 2,500 companies and 9 percent of the year’s turnovers). – There was also quite a low rate of forced turnovers in 2012, just 2.8 percent of all 2,500 companies and 19 percent of the year’s turnovers. – Taken together, all this may signal that companies are taking active, considered steps to put in place the new leadership they believe they need for the years to come. They appear to feel stable enough to move decisively rather than postponing action, as happened during the depths of the economic crisis. It’s also likely that increased planning is a response to demands for greater corporate accountability. (For more data on turnovers by region and industry, see pages 23 and 24.)

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The number of CEO turnovers in 2012 is the second-largest in the 13-year history of our study, second only to that in 2005.

The rising rate of planned turnovers may signal that companies are taking active, considered steps to put in place the new leadership they believe they need for the years to come. They appear to feel stable enough to move decisively rather than postponing action, as happened during the depths of the economic crisis.

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32.8% 30.1%

=

=

New CEOs are mostly familiar faces
Incoming CEO Status—Insider vs. Outsider
Breakdown by Succession Reason: 2009–11 vs. 2012
20% 18%

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29%

29%

27%

30% Outsider Insider

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80%

71%

71%

73%

82%

70%

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Total 2009–11

Total 2012

Forced 2009–11

Forced 2012

Planned 2009–11

Planned 2012

Approved Color

Note: - The total for 2009–11 shown here may be different from totals reported in 2009–11 because in those years some incoming CEOs were characterized as outsiders in a way inconsistent with prior and subsequent analysis. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.

• 71 percent of new CEOs in 2012 were insiders—people already at the company when they became CEO. – This is a notable decrease in the share of insiders compared with previous years. Indeed, between 2009 and 2011, the average share of insiders was 80 percent. More companies may now feel stable enough to take a bit of a risk on an unknown leader. – Interestingly, the share of insiders in forced turnovers increased by two percentage points in 2012, from 71 percent in 2009–11 to 73 percent in 2012. – The entire drop in hiring insiders is in planned turnovers: from 82 percent insiders on average between 2009 and 2011 to 70 percent in 2012. Given that these transitions are planned, it seems that companies are thoughtfully evaluating the risks they may be taking on an outsider. – Those risks may be mitigated somewhat by the fact that among the new CEOs in 2012 who are outsiders, 56 percent came from the same industry as their new company. • The share of insiders varies by where the company is headquartered. – In 2012, companies headquartered in Brazil, Russia, and India least often hired insider CEOs: Only 56 percent did so. – In the U.S. and Canada, the portion that hired insiders in 2012 was 78 percent. • Other analysis we’ve done shows that new insider CEOs in 2012 have a median tenure at their company of 12 years, ranging from a low of eight years in western Europe, and in Brazil, Russia, and India, to a high of 33 years in Japan. • Companies hiring insiders are increasing their chances of future stability, our data suggests, since over the past 13 years insiders have on the whole served as CEO about a year and a half longer than outsiders (7.4 years mean tenure compared with 5.9 years for outsiders). (For more data on insiders vs. outsiders, see page 25.) • There’s another way in which this year’s new CEOs are familiar: Almost all are men. Among new CEOs in 2012, only 5 percent—or 15—are women. This figure is the highest since 2009, but still tiny. All but one of these new female CEOs were hired at companies headquartered in mature markets.

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In planned turnovers the share of insiders dropped from 82 percent on average between 2009 and 2011 to 70 percent in 2012. Given that these transitions are planned, it seems that companies are thoughtfully evaluating the risks they may be taking on an outsider.

There’s another way in which this year’s new CEOs are familiar: Almost all are men. Among new CEOs in 2012, only 5 percent— or 15—are women. This figure is the highest since 2009, but still tiny.

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278

278

277

277

aölkdfölka 32.8% 30.1%

Companies in trouble more often force a turnover and more often look outside
Breakdown by Annualized Shareholder Returns over Outgoing CEOs’ Tenure: 2009–12

INCOMING CEO STATUS (INSIDER VS. OUTSIDER) BY SUCCESSION REASON (FORCED VS. PLANNED) BREAKDOWN BY QUARTILE OF TOTAL SHAREHOLDER RETURNS OVER OUTGOING CEOS’ TENURE: 2009–12

Incoming CEO Status (Insider vs. Outsider) by Succession Reason (Forced vs. Planned)

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27%

17%

17%
15% 16%

19%
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31%

73%

83%
21% 69% 79% 23% 77% 84%

83%

85%

81%
84%

28% 72%

35% 65%

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Forced Planned 61% 39%

Total

Forced Planned 22% 78%

Total

Forced Planned 14% 86%

Total

Forced Planned 18% 82%

Lowest Quartile of Performance

Second Quartile of Performance Outsider

Third Quartile of Performance Insider

Highest Quartile of Performance

Notes: - Total shareholder returns are annualized over outgoing CEOs’ tenure and are regionally adjusted, meaning that performance is measured relative to a regional index (S&P 500, Brazil Bovespa, FTSE 100, CAC 40, etc.). - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.

• Poorly performing companies (in terms of annualized total shareholder returns over the outgoing CEO’s tenure) more often forced out their CEOs than their better-performing counterparts did between 2009 and 2012. – Among the companies in the bottom TSR quartile, 39 percent of turnovers were forced (excluding M&A). – Among companies in the top TSR quartile, the share of forced turnovers was 18 percent, less than half the share in the bottom quartile. • Poorly performing companies also more often hired outsiders than their better-performing counterparts did between 2009 and 2012, perhaps indicating that they’re seeking new ideas to improve performance. – In planned successions, companies in the bottom TSR quartile hired outsiders 31 percent of the time, compared with 16 percent among better-performing companies. – Looking at both planned and forced successions, companies in the bottom TSR quartile hired outsiders 27 percent of the time, compared with 18 percent across all three betterperforming quartiles.

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When the outgoing CEO is chairman of the board, the new CEO is even more often an insider
Incoming CEO Status—Insider vs. Outsider
Breakdown by Use of Apprenticeship Model: 2009–12
PLANNED TURNOVER EVENTS WHEN OUTGOING CEO REMAINED OR BECAME CHAIRMAN N=279 Outsider 8% Outsider 24% PLANNED TURNOVER EVENTS WHEN OUTGOING CEO DID NOT REMAIN OR BECOME CHAIRMAN N=590

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92%

Insider

76%

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Approved Color

Note: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information. Exhibit also excludes forced turnover events.

• The apprenticeship model—in which the outgoing CEO remains or becomes chairman of the board and can “apprentice” the incoming CEO in a planned transition—is still a fairly common succession model. – In 2012, the outgoing CEO remained or became chairman of the board in 29 percent of all planned transitions. – The apprenticeship model in 2012 was most common in Japan (69 percent) and least common in Europe (15 percent). 18%
29% 28% 30%

20%

29%

• When companies use the apprenticeship model, the new CEO is much more likely to be an insider than in other planned turnovers.
80%

71%

Total 2009–11

Total 2012

– When the outgoing CEO remained or became chairman of the board, the share of insiders named CEO in a planned turnover 82% was 92 percent between 2009 and 2012, 72% 71% 70% compared with 76 percent when companies did not use the apprenticeship model. – Companies using the apprenticeship model seem to be particularly focused on continuity, both because they want to keep the former CEO engaged and because they almost always choose insiders. (For more data on apprenticeship models in CEO succession, see page 26.)
Forced 2009–11 Forced 2012 Planned 2009–11 Planned 2012

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Combined chairman–CEO appointments remain at low levels
Percentage of Incoming CEOs Who Also Hold the Position of Chairman
65% 60% 55% 50% 45% 39% 40% 35% 30% 25%
25% 40% 33% 33% 33% 30% 32% 31% 25% 26% 20% 19% 19% 15% 13% 26% 23% 24% 18% 17% 18% 11% 10% 16% 12% 7% 6% 2% 0% 5% 0% 0% 14% 13% 9% 20% 18% 17% 14% 12% 9% 29% 31% 48% 53% 52% 50% 48% 44% 63%

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=

=

61%

North America China & Rest of Asia Global Average Europe Japan

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37% 38%

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33%

20% 15% 10% 5%

18%

18% 16%

20%

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Approved Color

16%

14%

2%

0% 2000
Notes:

2% 0%

2001

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- “North America” includes the U.S., Canada, and Mexico. - Europe” includes Austria, Belgium, Britain, Croatia, Cyprus, Czech, Denmark, Finland, France, Germany, Greece, Guernsey, Hungary, Ireland, Italy, Jersey, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Russia, Spain, Sweden, Switzerland, and Turkey. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.

• The share of new CEOs also appointed chairman of the board in 2012 reached a minimum seen only once before: 12 percent (the same as in 2009). • This convergence on a low level of joint appointments is likely happening because more and more companies consider these appointments poor corporate governance. In some industries, notably financial services in recent years, regulators have also discouraged the practice. • The share of joint appointments varies markedly among regions—in 2012, it ranges from a high of 20 percent in the U.S., Canada, and Mexico to 0 percent in Japan. One reason for the Japanese number may be that the roles of CEO and chairman there tend to have very different responsibilities.

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Most new CEOs have the same nationality as their company headquarters
Incoming CEOs’ Nationality Region: Same as or Different from Corporate HQ Location
Breakdown by Corporate HQ Region: 2009–12
930 10% 7% 219 12% 5% 186 6% 24% 140 1% 0% 154 19% 2% 45 2% 0% 104 13% 1% 82 16% 6%

32.8% 30.1%

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83%

83%

70%

99%

79%

98%

86%

78%

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Approved Color Global U.S./Canada Western Europe Japan Other Mature China Brazil, Russia, India Other Emerging

Different Country, Different Region
Notes:

Different Country, Same Region

Same Country

- “Other mature” economies include Argentina, Australia, Bahrain, Chile, Cyprus, Czech Republic, Hong Kong, Hungary, New Zealand, Poland, South Korea, etc. - “Other emerging” economies include Egypt, Kazakhstan, Mauritius, Mexico, Mongolia, Nigeria, Saudi Arabia, South Africa, Turkey, etc. - “Mature” countries are defined as per the U.N. Development Programme 2012 ranking of countries with “very high human development” (human development index >0.788); all others are “emerging” countries. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.

• Most companies hire CEOs from the same country in which the company is headquartered, adding to the familiarity they get when they hire insiders. – Between 2009 and 2012, 83 percent of companies hired CEOs from the same country in which the company’s headquarters is located. – In addition, companies hiring foreigners have very often selected CEOs who come from the same region as the company’s headquarters: Between 2009 and 2012, 7 percent of all hires were from different countries in the same region. • Depending on where they are headquartered, companies have shown marked differences in how often they have hired foreigners over the past four years. – Western European companies most often hired CEOs with a different nationality (30 percent of the time), but only 23 percent of those (6 percent of all new CEOs at western European companies) came from outside the region. – Japanese companies, on the other hand, hired a non-Japanese CEO only 1 percent of the time.

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Most companies hire CEOs from the same country in which they are headquartered, adding to the familiarity they get when they hire insiders. Between 2009 and 2012, 83 percent of companies hired CEOs from the same country in which the company’s headquarters is located.

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84%

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e of

Where new CEOs come from: Regions
Incoming CEOs’ Nationality Region
Breakdown by Corporate HQ Region: 2009–12

30.1%

219

186 3%

140 1%

154 4%

45 2%

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82 4%

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7%

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1% 1% 3% 99% 94% 88%

9%

2% 11% 4% 98%

Japan Other Mature China Brazil, Russia, India 1% Other Emerging CEO Nationality Is Same Region as Corporate HQ Region

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33%

4% 1% 1% 81% 87%

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U.S./Canada

Western Europe

Japan

Other Mature

China

Brazil, Russia, India

Other Emerging

Notes:

- “Other mature” economies include Argentina, Australia, Bahrain, Chile, Cyprus, Czech Republic, Hong Kong, Hungary, New Zealand, Poland, South Korea, etc. - “Other emerging” economies include Egypt, Kazakhstan, Mauritius, Mexico, Mongolia, Nigeria, Saudi Arabia, South Africa, Turkey, etc. - “Mature” countries are defined as per the U.N. Development Programme 2012 ranking of countries with “very high human development” (human development index >0.788); all others are “emerging” countries. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.



• Companies headquartered in “other mature” markets most often hired CEOs from a different region: Between 2009 and 2012, 19 percent of the incoming CEOs at companies in those countries came from another region. More of them came from western Europe (9 percent) than any other region. • Indeed, western Europe stood out as a source of CEOs for other regions between 2009 and 2012. It is the only region that supplied new CEOs to all the other regions. • Japan, on the other hand, supplied CEOs to no other region between 2009 and 2012.

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Western Europe stood out as a source of CEOs for other regions between 2009 and 2012. It is the only region that supplied new CEOs to all the other regions.

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Global experience not required
Incoming CEOs with Experience in Different Regions: 2012
BREAKDOWN BY COMPANY HQ REGION 279 13 15% 45% 29 17% 38% 45% 47% 56% 60% 26 78 30 48 55 29 17% 29% 35% 40% 44% 47% 67% BREAKDOWN BY CEO NATIONALITY REGION 14 23 35 27 64 57

32.8% 30.1%

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85% 83% 55% 62% 55% 53% 44%

83% 71% 65% 60%

56%

40%

53% 33%

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Approved Colo

Total

China

Japan

Brazil, Russia, India

U.S./ Other Canada Emerging

Other Mature

Western Europe

Japan

China

Brazil, Russia, India

Other Mature

Other Emerging

U.S./ Canada

Western Europe

Has Not Worked in Different Regions
Notes:

Has Worked in Different Regions

- “Previous experience in different regions” means incoming CEOs’ experience in regions other than company HQ region; data is not exhaustive. - “Other mature” economies include Argentina, Australia, Bahrain, Chile, Cyprus, Czech Republic, Hong Kong, Hungary, New Zealand, Poland, South Korea, etc. - “Other emerging” economies include Egypt, Kazakhstan, Mauritius, Mexico, Mongolia, Nigeria, Saudi Arabia, South Africa, Turkey, etc. - “Mature” countries are defined as per the U.N. Development Programme 2012 ranking of countries with “very high human development” (human development index >0.788); all others are “emerging” countries. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.



• In 2012, 45 percent of incoming CEOs had experience working in a region other than their current company’s headquarters region at some point in their careers. • Whether a new CEO has global working experience varies widely by the region in which his or her company has its headquarters. – Western European companies most often hired CEOs with global working experience: In 2012, 60 percent of those companies did so. – At companies in the U.S. and Canada, 45 percent of incoming CEOs had global working experience. – Chinese companies least often hired CEOs with global working experience: In 2012, only 15 percent did so. • Whether new CEOs have global working experience also varies markedly depending on their origin. – CEOs from western Europe had most often worked in different regions: 67 percent of those incoming leaders in 2012 had done so. – CEOs from Japan had done so least often: Only 17 percent of those who became new CEOs in 2012 had worked outside Japan.

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38%

17% Just over half of new CEOs joined their company from one in the same industry 15%

Incoming CEOs: Joined from the Same or Different Industry
Breakdown by Current Company Industry: 2012
224 36 17% 32% 45% 37% 38% 47% 31 19 13

Total

China

Japan

Brazil, Russia, India

U.S./ Canada

Other Other Western Emerging Mature Europe

30.1%

38

22

25

15

25

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Same Indu

Different In
Total Financial Services Consumer Staples IT Telecom Energy Industrials Materials Consumer Discretionary Utilities

Joined from Same Industry

Joined from Different Industry

Notes: - Exhibit shows incoming CEOs by whether they worked in the same or a different industry immediately before joining their current company, whether they joined as CEO or earlier; data is not exhaustive. Incoming CEOs who worked at the same company their entire career are excluded. - “Consumer discretionary” includes automobiles and components, consumer durables and apparel, consumer services, media, and retailing. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.

Y INCOMING CEO NATIONALITY REGION: 2012
14 23 35 27 64 57

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• 55 percent of this year’s new CEOs joined their current company from one in the same industry (whether they joined their current company as CEO or in another position). • There are large differences among industries as to whether companies hired the person who became their new CEO in 2012 from a different industry. – Utilities most often named as CEO someone who had joined the company from a different industry: 72 percent did so. This may be because many utilities have been under significant performance pressure and are looking for new ideas. – Financial-services companies did so least often: Only 17 percent of CEOs appointed in that industry had joined the company from a different industry.

33% 60% 56% 53%

71%

65%

%

67% 35% 40% 44% 47%

29%

%
China Brazil, Russia, India Other Other Mature Emerging U.S./ Canada Western Europe

an

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In Industrials column show industries with one decimal place as follows: Financials 32%; IT 4.5%; Telecom 4.5%;Energy 4.5%; Industrials 50%; Utilities 4.5%

aölkdfölka 32.8% 30.1%

WhereTelecom new CEOs10.5%; come from: Industries 10.5%;Industrials Consumer
Discretionary 5.3%

In the IT column, show figures with one decimal point as follows: Financials 10.5%, IT 63.2%;

Incoming CEOs’ Prior Industries
Breakdown by Current Company Industry: 2012
36 31 16% 19 10.5% 13 8% 15% 38 8% 5% 32% 22 25 8% 4% 4% 20% 24% 15 25

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13% 53% 4.5% 4.5% 4.5% 48% 7%

4% 4%

83% 68%

63.2% 62%

Financial Services
24%

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Consumer Staples IT Telecom Energy Industrials Materials Consumer Discretionary Utilities

27% 12% 50% 4% 36% 18% 33% 28%

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10.5% 11% 6% 13% 3% 10.5% 5.3%

Approved Co

15%

8% 8% 4.5%

Financial Services

Consumer Staples

IT

Telecom

Energy

Industrials

Materials

Consumer Discretionary

Utilities

Notes: - Exhibit shows incoming CEOs by which industry they worked in immediately before joining the current company, whether they joined as CEO or earlier; data is not exhaustive. Incoming CEOs who worked at the same company their entire career are excluded. - “Consumer discretionary” includes automobiles and components, consumer durables and apparel, consumer services, media, and retailing. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.

83

57

32

53

14

27

34

3% 22% 37%

• Incoming CEOs in 2012 who joined their current company from the financial-services 32% 36% 38% 44% industry not only took the vast majority—83 percent—of new CEO roles in that industry, but also took meaningful shares of new CEO roles in all other industries. – At industrials companies, 32 percent of incoming CEOs in 2012 came from the financial-services industry, the highest share in a non-financial industry. 97% – At telecom, energy, and materials companies, 8 percent of incoming CEOs in 2012 came 68% from the financial-services industry, the lowest shares in non-financial industries. 64% 62% 56% – Financial services is the only industry that supplied new CEOs to all other industries.

78% 63%

U.S./ Canada

• The materials industry is notable because it’s the only industry in which the single largest share of incoming CEOs in 2012 was from a different industry: 48 percent of the new Western Other China Brazil, Other CEOs in Japan materials cameMature from industrials companies. Russia, Europe Emerging
India Outsider Insider

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Total

China

Japan

Brazil, Russia, India

U.S./ Canada

Other Other Western Emerging Mature Europe

Guidelines: 11.0 million aölkdfölka

A full quarter of all new CEOs have worked at only one company for their whole career
Incoming CEOs’ Previous Experience in Different Companies: 2012
N=300 32 No 25% 25% 68% BREAKDOWN BY COMPANY HQ REGION 53 34 27 83 57 14

32.8% 30.1%

TABLE HEAD

A4 format: - width for 3 co - width for 2 co

Letter format: - width for 3 co - width for 2 co 71% 81% 86%

88%

93%

Lines: 0,5 pt Lines for legen

75%

75% Yes Japan

32%

29%

19% Brazil, Russia, India

14% U.S./ Canada

12% Western Europe

7% China

Note: Please always otherwise InDe file. These colors c

Other Mature

Other Emerging

Approved Co

Has Not Worked in a Different Company Has Worked in a Different Company

Notes:

- “Previous experience in different companies” means new CEO had worked at another company at any time before being named CEO at current company. - “Other mature” economies include Argentina, Australia, Bahrain, Chile, Cyprus, Czech Republic, Hong Kong, Hungary, New Zealand, Poland, South Korea, etc. Japan Other Other Brazil, U.S./ Western China - “Other emerging” economies include Egypt, Kazakhstan, Mauritius, Mexico, Mongolia, Nigeria, Saudi Arabia, South Africa, Turkey, etc. Mature Emerging Russia, Canada Europe - “Mature” countries are defined as per the U.N. Development Programme 2012 ranking of countries with “very high human development” (human development index India >0.788); all others are “emerging” countries. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.



BY INCOMING CEO NATIONALITY REGION: 2012
14 23 35 27 64 57 •

29

25 percent of new CEOs in 2012 have worked only at the company where they’re now CEO; 75 percent have worked at one or more companies other than the one they’re now leading.

33% 60% 56% 53%

71%

65%

• Working at only one company is far more common in some countries than others. – Companies in Japan lead the pack, by far, in terms of CEOs who have spent their whole career at one company: 75 percent of new CEOs in Japanese companies in 2012 have never worked at another company. – In 2012, companies in China hired the largest share of CEOs with experience in other companies; 93 percent of new CEOs in Chinese companies had worked at a different company at some point in their career. – At companies in western Europe and in the U.S./Canada, the shares of new CEOs with experience at other companies are also high, at 88 percent and 86 percent, respectively.

3%

67% 35% 40% 44% 47%

29%

7%

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Booz & Company

Total

China

Japan

Brazil, Russia, India

U.S./ Canada

Other Other Western Emerging Mature Europe

Guidelines: 11.0 million aölkdfölka 32.8% 30.1%

New CEOs’ education
Shares of Incoming CEOs with Selected Degrees: 2012
239 0.4% 276 276

TABLE HEADI

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71% 99.6% 91% No Yes

Letter format: - width for 3 colu - width for 2 colu

Lines: 0,5 pt Lines for legend

29% 9% Undergraduate MBA Ph.D.

Note: Please always d otherwise InDes file. These colors ca

Approved Colo

Note: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.

• All but one of the new CEOs in 2012 have an undergraduate degree, but few have MBAs or Ph.D.s. – Only 29 percent of the new CEO class in 2012 has an MBA. – Only 9 percent of the new CEO class in 2012 has a Ph.D. • Having an MBA may slightly accelerate the path to the chief executive’s office, but having a Ph.D. doesn’t seem to have the same effect. – The median age of new first-time CEOs in 2012 with an MBA was 52 years, just slightly lower than that of CEOs without an MBA, which was 54. – The median age of new first-time CEOs in 2012 who have a Ph.D. was 58 years, whereas for those without the degree it was 53. • Companies in different regions hired new CEOs with MBAs at very different rates. – Companies from emerging markets other than BRIC countries (Brazil, Russia, India, and China) most often hired CEOs with MBAs: In 2012, 45 percent of new CEOs in companies headquartered in these markets have the degree. – 36 percent of new CEOs in 2012 at companies headquartered in the U.S. and Canada have an MBA. – 23 percent of new CEOs in 2012 at companies headquartered in China have an MBA. – 16 percent of new CEOs in 2012 at companies in western Europe have an MBA. • New CEOs from different regions have MBAs at very different rates too. – New CEOs in 2012 who are nationals of Brazil, Russia, or India have MBAs more often than CEOs from any other region—exactly 50 percent do. – 35 percent of new CEOs in 2012 who are nationals of the U.S. and Canada have an MBA. – 21 percent of new CEOs in 2012 who are Chinese nationals have an MBA. – 18 percent of new CEOs in 2012 who are from western Europe have an MBA.

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Booz & Company

Total

China

Japan

Brazil, Russia, India

U.S./ Canada

Other Other Western Emerging Mature Europe

11.0 million aölkdfölka 32.8%

=

=

=

The largest companies seek a different mix of experience than their smaller counterparts
Incoming CEOs in 2012
Insider vs. Outsider
30 17% 270 31%

30.1%

=

TABLE HEADIN
Experience in Different Regions
29 250

Nationality Same as vs. Different from Company HQ
28 25% 238 18%

Joined from Same or Different Industry
19 32% 205

Previous Experience in Different Companies
30 270

A4 format: - width for 3 colum - width for 2 colum

52%

44%

46%

63%

76%

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83% 69% 48% Top 250 56% 75%

82% 68% 54% 37% Top 250

24% Bottom 2,250

Top 250

Bottom 2,250 Insider Outsider

Bottom 2,250

Top 250

Bottom 2,250

Top 250

Bottom 2,250

Has Not Worked in Different Regions Worked in Different Regions

Same Nationality Different Nationality

Joined from Same Industry Joined from Different Industry

Has Not Worked at Another Company Worked at Another Company

Note: Please always de otherwise InDesig file. These colors can’

Approved Color

Notes:

- “Previous experience in different regions” means an incoming CEO has experience in regions other than company HQ region; data is not exhaustive. - Exhibit shows incoming CEOs by whether they worked in the same or a different industry immediately before joining their current company, whether they joined as CEO or earlier; data is not exhaustive. Incoming CEOs who worked at the same company their entire career are excluded. - “Previous experience in different companies” means new CEO had worked at another company at any time before being named CEO at current company. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.

• The largest companies more often seek CEOs who are very familiar both with their companies’ sprawling operations and with global markets. – In 2012, 83 percent of incoming CEOs at the 250 largest companies were insiders, compared with 69 percent at the smallest 2,250 companies. – In 2012, 52 percent of incoming CEOs at the 250 largest companies had experience working in regions other than the company’s headquarters region, compared with 44 percent at the smallest 2,250 companies. – In addition, in 2012 only 75 percent of incoming CEOs at the 250 largest companies were from the same country where their company’s headquarters was located, compared with 82 percent at the smallest 2,250 companies. • Whether new CEOs have joined the company from another industry or have experience at other companies seems to matter less to the largest companies than to their smaller counterparts. – At the largest 250 companies, 32 percent of the incoming CEOs in 2012 joined their company from a different industry, compared with 46 percent at the smallest 2,250. – And 63 percent of the incoming CEOs at the largest 250 companies in 2012 had worked in another company, compared with 76 percent at the smallest 2,250. • Incoming CEOs in 2012 at the 250 largest companies are likelier than others to have MBAs: 41 percent do, compared with 28 percent at the smallest 2,250 companies. • Collectively, this data suggests that the largest companies seek executives with broad experience, much of which they can provide internally. In addition, simply because of their size, these companies usually have much deeper talent pools than smaller companies, as well as more resources to develop leaders internally. And the largest companies are likelier to recruit at business schools, so they probably start with a higher share of executives with an MBA degree.

21

Booz & Company

The largest companies seek executives with broad experience, much of which they can provide internally. In addition, simply because of their size, these companies usually have much deeper talent pools than smaller companies, as well as more resources to develop leaders internally.

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Booz & Company

45% 15%
Total China

38% 17%
Japan Brazil, Russia, India

45%

47%

56%

60%

APPENDIX

U.S./ Canada

Other Other Western Emerging Mature Europe

Guidelines: 11.0 million aölkdfölka 32.8% 30.1%

Companies in Brazil, Russia, and India had the highest increase in turnover rates in 2012— and the highest increase in share of planned turnovers
CEO Turnover Rate by Region and Succession Reason
As % of Companies in the Top 2,500 Based in Each Region
2012
Bob: In this chart, pls change the column totals as follows: US/Canada total to 13%, Western Europe to 14.2%, Japan to 15.7%, China to 5.5%, and Other Emerging to 11.4% Bob: And in this chart, change the column totals as follows: Japan to 15.3%, BRI to 23.9%, and Other Emerging to 16.2%

TABLE HEADI 2007–11
23.9% 4.2%

A4 format: - width for 3 colu - width for 2 colu

Letter format: - width for 3 colu - width for 2 colu
16.2% 0.4% 2.5%

15.7% 13.0% 2.4% 2.8% 4.1% 14.2% 2.0% 1.1% 1.8%

15.0% 1.1%

15.4% 1.8% 11.4%

14.3% 2.6% 0.6% 2.8% 2.7%

14.7% 0.8% 3.3%

15.3% 0.9% 2.2%

16.0% 2.6%

4.2% 0.0%

Lines: 0,5 pt Lines for legend

5.9%

4.8%

8.1% 0.5% 12.2% 13.4% 1.9% 15.5% 13.3%

12.8% 7.8% 8.1% 8.0%

5.5% 0.3% 0.8% 4.4% 8.8% 8.0% 9.0% 10.6%

Note: Please always d otherwise InDes file. These colors ca

5.7%

Approved Colo

U.S./ Canada

Western Europe

Japan

Other Mature

China

Brazil, Russia, India

Other Emerging

U.S./ Canada

Western Europe

Japan

Other Mature

China

Brazil, Russia, India

Other Emerging

M&A
Notes:

Forced

Planned

- “Other mature” economies include Argentina, Australia, Bahrain, Chile, Cyprus, Czech Republic, Hong Kong, Hungary, New Zealand, Poland, South Korea, etc. - “Other emerging” economies include Egypt, Kazakhstan, Mauritius, Mexico, Mongolia, Nigeria, Saudi Arabia, South Africa Turkey, etc. - “Mature” countries are defined as per the U.N. Development Programme 2012 ranking of countries with “very high human development” (human development index >0.788); all others are “emerging” countries.



U.S./ Canada

Western Europe

Japan

Other Mature

China

Brazil, Russia, India

Other Emerging

U.S./ Canada

Western Europe

Japan

Other Mature

China

Brazil, Russia, India

Other Emerging

• In 2012, CEO turnover rates increased compared to the average turnover rates over the prior five years (2007–11) in every region except Japan. – The increase was highest in Brazil, Russia, and India, where turnover increased by 55 percent, from 15.4 percent to 23.9 percent. – In western Europe, the turnover rate increased the least (except for Japan), growing by 3.5 percent from 14.2 percent in 2007–11 to 14.7 percent in 2012. – In Japan, the 2012 turnover rate dropped 2.5 percent compared with 2007–11, from 15.7 percent to 15.3 percent. • The share of planned turnovers also increased in 2012, compared with the 2007–11 average, in all regions except Japan. – The highest increase in planned turnovers was also in Brazil, Russia, and India; their rate increased 76 percent, from 8.8 percent in 2007–11 to 15.5 percent in 2012. This is a rise in the share of planned turnovers from 57 percent to 65 percent. – Excluding Japan, planned turnover rates increased the least in the U.S. and Canada, growing by 15 percent from 7.8 percent in 2007–11 to 9.0 percent in 2012, still an increase from 60 to 63 percent in the share of planned turnovers. – In Japan the rate dropped 5 percent in 2012 compared with the 2007–11 average, from 12.8 percent to 12.2 percent. This is a drop in share of planned turnovers of only one and a half percentage points, from 81.5 to 80 percent.

23

Booz & Company

15%
Total China Japan Brazil, Russia, India U.S./ Canada Other Other Western Emerging Mature Europe

Guidelines: 11.0 million aölkdfölka 32.8% 30.1%

=

Telecom and utilities remain volatile
As % of Companies in the Top 2,500 in Each Industry
24% 5% 24% 4% 21% 1% 5% 16% 1% 3%

Bob: Change the following column totals: Make Energy 22%, Consumer Staples 15%, Financial Services 14%, Consumer Discretionary 10%

=

=

CEO Turnover Rate by Industry and Succession Reason: 2012

=

TABLE HEADIN

A4 format: - width for 3 colum - width for 2 colum

Average 15%

7%

5%

15% 2% 2% 14% 2% 2% 13% 1% 2% 12% 1% 2%

Letter format: - width for 3 colum - width for 2 colum Lines: 0,5 pt Lines for legend:

12%

15%

15% 12% 11% 10% 10% 9%

9% 1%

0%

8%

Note: Please always de otherwise InDesig file. These colors can’

Telecom

Utilities

Energy

Materials

Information Technology

Consumer Staples

Financial Services

Industrials

Consumer Discretionary

Approved Color

Number of turnover events Number of companies in top 2,500

25 104

39 165

50 234 M&A

43 274 Forced

31 205 Planned

50 350

64 499

44 357

29 312

Note: “Consumer discretionary” includes automobiles and components, consumer durables M&A and apparel, consumer services, media, and retailing.

Forced Planned

• The telecom and utilities industries had the highest turnover rates in 2012 (both at 24 percent), closely followed by energy (21 percent). – These same three sectors had the highest turnover rates in 2011. – As in previous years, the telecom and utilities industries stand out for high levels of forced turnover (7 and 5 percent, respectively, in 2012). • The industry with the lowest turnover rate in 2012 was consumer discretionary, at 9 percent.

24

Booz & Company

Guidelines: 45% 15% 17% 32.8% 30.1% 45% 47% 56% 60% 11.0 million aölkdfölka

38%

In 2012, Japanese companies promoted the Japan highest share of insiders, and China U.S./ Other Other Western Total Canada Emerging Mature Europe companies in Brazil, Russia, and India the lowest
Incoming CEO Status—Insider vs. Outsider
Breakdown by Company HQ Region: 2012
83 22% 37% 38% 36% 44% 57 32 3% 32% 53 14 27 34

TABLE HEAD

A4 format: - width for 3 co - width for 2 co

Letter format: - width for 3 co - width for 2 co Lines: 0,5 pt Lines for legen

97% 78% 63% 62% 64% 56% 68%

Note: Please always otherwise InDe file. These colors ca

Approved Col U.S./ Canada Western Europe Japan Other Mature Outsider Insider China Brazil, Russia, India Other Emerging

Same Ind

Different I

Notes:

- “Other mature” economies include Argentina, Australia, Bahrain, Chile, Cyprus, Czech Republic, Hong Kong, Hungary, New Zealand, Poland, South Korea, etc. - “Other emerging” economies include Egypt, Kazakhstan, Mauritius, Mexico, Mongolia, Nigeria, Saudi Arabia, South Africa, Turkey, etc. - “Mature” countries are defined as per the U.N. Development Programme 2012 ranking of countries with “very high human development” (human development index >0.788); all others are “emerging” countries. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.



U.S./ Canada

Western Europe

Japan

Other Mature

China

Brazil, Russia, India

Other Emerging

25

Booz & Company

Guidelines: 45% 15%
Total

38% 17%

45%

47%

56%

60%

11.0 million aölkdfölka 32.8% 30.1%

In 2012 the apprenticeship model was most common in Japan and least common in Europe China Japan U.S./ Other Other Western
Canada Emerging Mature Europe

=

Apprenticeship Model by Region
Percentage of Outgoing CEOs in Planned Turnover Events Who Remained or Became Chairman
Japan North America Global Average Europe

TABLE HEADIN 100% 90% 80% 70% 60% 50% 40% 30% 20% 15% 10% 0% 2000
Notes:

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Letter format: - width for 3 colu - width for 2 colu 69%

Lines: 0,5 pt Lines for legend:

35% 29%

Note: Please always de otherwise InDesi file. These colors can

Approved Colo

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

- “North America” includes the U.S., Canada, and Mexico. - “Europe” includes Austria, Belgium, Britain, Croatia, Cyprus, Czech, Denmark, Finland, France, Germany, Greece, Guernsey, Hungary, Ireland, Italy, Jersey, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Russia, Spain, Sweden, Switzerland, and Turkey. - Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information. Exhibit also excludes forced turnover events.

83 22%

57

32 3%

53

14

27

34

37%

38%

36%

32% 44%

97% 78% 63% 62% 64% 56% 68%

U.S./ Canada

Western Europe

Japan

Other Mature Outsider Insider

China

Brazil, Russia, India

Other Emerging

26

Booz & Company

METHODOLOGY

This study identified the world’s 2,500 largest public companies, defined by their market capitalization (from Bloomberg) on January 1, 2012. Our research team members then identified the companies among the top 2,500 that had experienced a chief executive succession event and cross-checked data using a wide variety of printed and electronic sources in many languages. For a listing of companies that had been acquired or merged in 2012, we also used Bloomberg. Each company that appeared to have changed its CEO was investigated for confirmation that a change occurred in 2012, and additional details—title, tenure, chairmanship, nationality, professional experience, and so on—were sought on both the outgoing and incoming chief executives (as well as any interim chief executives). Company-provided information was acceptable for most data elements except the reason for the succession. Outside press reports and other independent sources were used to confirm the reason for an executive’s departure. Finally, Booz & Company consultants worldwide separately validated each succession event as part of the effort to learn the reason for specific CEO changes in their regions. To distinguish between mature and emerging economies, Booz & Company followed the United Nations Development Programme 2012 ranking. Total shareholder return data for a CEO’s tenure was sourced from Bloomberg and includes reinvestment of dividends (if any). Total shareholder return data was then regionally market-adjusted (measured as the difference between the company’s return and the return of the local regional index over the same time period) and annualized.

27

Booz & Company

Booz & Company is a leading global management consulting firm focused on serving and shaping the senior agenda of the world’s leading institutions. Our founder, Edwin Booz, launched the profession when he established the first management consulting firm in Chicago in 1914. Today, we operate globally with more than 3,000 people in 58 offices around the world. We believe passionately that essential advantage lies within and that a few differentiating capabilities drive any organization’s identity and success. We work with our clients to discover and build those capabilities that give them the right to win in their chosen markets. We are a firm of practical strategists known for our functional expertise, industry foresight, and “sleeves rolled up” approach to working with our clients. To learn more about Booz & Company or to access its thought leadership, visit booz.com. Our awardwinning management magazine, strategy+business, is available at strategy-business.com.

©2013 Booz & Company Inc.

Booz & Company

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