The 2013 Australian Chief Executive Study: The diversity imperative

For the past 14 years Strategy& has examined CEO succession among the top Australian firms to better understand how companies in the region hire, retain, and change their chief executives, in comparison to the rest of the world. This analysis looks at trends relating to performance, tenure, reasons for turnover and the number of insider appointments versus outsider appointments.

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The 2013 Australian Chief Executive Study The diversity imperative


About the authors

Bangkok Steven Furst Principal +66-2-653-2255 steven.furst Canberra David Vrancic Partner +61-2-6279-1903 david.vrancic Jakarta Ian Buchanan Senior Executive Advisor +61-2-9321-2853 ian.buchanan Kuala Lumpur David Hovenden Partner +60-3-2095-3188 david.hovenden

Melbourne Lynda Brest Executive Advisor +61-3-9221-1933 lynda.brest Sydney Varya Davidson Partner +61-2-9321-2820 varya.davidson Chris Manning Partner +61-2-9321-1924 chris.manning

Varya Davidson is a partner with Strategy& and leads the firm’s organisation, change, and leadership practice in Australia, New Zealand,
and Southeast Asia. She specialises in strategic transformation with a focus on people and organisation dynamics, including using culture to accelerate organisational change.

Lynda Brest is a Melbourne-based executive advisor in Strategy&’s organisation, change, and leadership practice. She specialises in largescale business transformation and culture evolution, with a focus on leadership, organisational and workforce performance, innovation, and sustainable growth.



Executive summary

Our 14th annual study of CEO succession in Australia continues our long-standing effort to better understand how companies in the region hire, retain, and change their chief executives, in comparison to the rest of the world. Key findings this year: 16.4 percent of Australian companies hired new CEOs in 2013, a slight rise from the previous year. Planned succession events rose to their highest level since we began the study in 2000. The median tenure of outgoing Australian CEOs rose slightly in 2013, to 4.3 years, but remained below the global median, as it has since 2007. And again, companies that carried out their CEO succession plans and appointed CEOs from inside tended to perform better than those that forced out their CEOs and hired outsiders. This year, we looked more closely at the current status of female CEOs in Australia. Women have not yet made great strides on this front. Though appointments increased slightly in 2013, the retention of current female CEOs showed a decline, in contrast to the increased retention of female CEOs in the rest of the world. Companies looking to increase diversity at the highest ranks and potentially gain the performance boost that comes with a strong CEO succession process need to set clear diversity objectives, increase their pool of talented insiders, find and begin grooming talented females early in their careers, and communicate clearly their expectations for what it takes to become a top executive.



Changes at the top

How did CEOs in Australia fare in 2013? Did Australian companies switch CEOs at a higher rate than in the past, or more often than companies around the world? Did the number of female CEOs increase last year? We put these and other questions to the test in this, our 14th annual study of CEO succession in Australia among the more than 300 companies that are or have been part of the ASX 200 since 2000. The study, conducted in conjunction with Strategy&’s global study of CEO succession, provides an understanding of Australia’s environment on its own terms, but also allows us to make important comparisons between Australia and the rest of the world. Overall, CEO turnover in Australia rose in 2013, remaining above global levels for the seventh straight year, and planned succession events rose to their highest level since we first started measuring them in 2000. The median tenure of outgoing Australian CEOs, which had been decreasing for several years, rose slightly in 2013 but remained below the global median for the sixth year in a row. And companies that implemented a planned CEO succession and appointed incoming CEOs from within their ranks tended to perform better than those whose CEOs were forced out of office. This year, we also took a closer look at gender diversity among Australian CEOs. Though female appointments increased slightly, the retention of female CEOs is in decline, contrary to the increase in the retention of female CEOs in the rest of the world. Indeed, women CEOs in Australia are more often forced out of office than their male counterparts. Our goal in looking closely at how these critical trends are affecting the role of CEOs in Australia is twofold: first, to track and assess key trends in CEO succession in Australia — why companies are replacing their CEOs, whom they are choosing through their succession processes, and how long Australian CEOs retain their positions — and second, to extract from these trends insights on CEO succession management levers that Australian companies can use to improve their CEO succession planning and increase the participation of women at the highest levels.
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Rapid succession

The rate of CEO turnovers rose slightly in 2013, to 16.4 percent from 15.2 percent the year before. Still, that’s far below the 23.1 percent rate reached in 2011 — thanks primarily to the high number of mergers and acquisitions that year — and just slightly above 2013’s global rate of 14.4 percent (see Exhibit 1). The turnover rate among Australian CEOs has now exceeded global levels every year since 2007, fueled largely by changes at mining and minerals companies, which made up 27 percent of the companies in the ASX 200 in 2013 and accounted for 46 percent of the CEO turnover events.

Exhibit 1 Global and Australia CEO Turnover Rate: 2000–2013
25% 20% 15% 14.7 12.9 12.6 10.9 12.1 14.4 18.0

22.3 15.6 13.1


15.2 16.4 14.2 11.6 15.0 14.4

14.4 14.3 13.4 13.8

11.5 10% 11.3 11.3 10.8 9.8 5% 0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Australia Global
Source: Strategy& analysis



Companies in Australia are taking an increasingly planned approach to making changes at the top. Planned successions, in which CEOs prepare to leave rather than being dismissed from office or departing as the result of a merger or acquisition, accounted for 68 percent of all CEO turnovers, up from 60 percent in 2012 (see Exhibit 2). That figure, the highest since our research began, is in line with the level of planned turnover events globally, which was 70 percent in 2013. Forced turnover events also rose in Australia, offset by a significantly lower level of M&A activity in 2013, compared with the previous year.

Exhibit 2 Australian CEO Succession Reasons as a Percentage of Turnover Events: 2000–2013
25 24% 26 19% 27 22% 28 14% 26 31 16% 19% 19% 30 17% 41 50 16% 29% 12% 29% 18% 27% 40% 17% 21% 60% 42% 52% 57% 65% 54% 57% 59% 44% 67% 54% 41% 60% 68% 35 33 15% 38% 58 42 29% 12% 50 8% 24%


16% 38%
















2013 M&A Forced Planned

Source: Strategy& analysis



Despite the increase in CEO turnover and the higher rate of forced turnovers from 2012 to 2013, the ongoing decline in the median tenure of departing Australian CEOs over the past several years was curtailed in 2013, rising slightly to 4.3 years. Still, that is lower than both the 2013 global median of 5.0 years and the historical Australian median for the period from 2006 to 2013, also 5.0 years (see Exhibit 3). In Australia’s case, briefer CEO tenure may be influenced in part by the higher levels of forced turnover relative to other countries. Our research shows that CEOs forced out of office have significantly lower median tenure than those who leave through a planned event. In 2013, CEOs forced out of office had a median tenure of 3.1 years, compared with a median of 4.7 years for CEOs in planned turnover situations.

Exhibit 3 Outgoing CEO Median Tenure (Years in Office): 2006–2013
5.7 5.9 4.9 5.0 5.0 5.0 4.8 5.0














2011 2012 2013 Australia median years Australia median 5 years Global median years

Note: Exhibit excludes turnover events resulting from M&A and interims for incoming CEOs and events with incomplete turnover information for incoming or outgoing CEOs Source: Strategy& analysis



The insider performance advantage
In last year’s study we discussed at length the return of the insider CEO in Australia. The upward trend in internal CEO appointments continued in 2013, with just over two-thirds of incoming CEOs appointed from within their organisations. However, that remains lower than the global average of 76 percent, indicating that Australian companies remain more likely than their global counterparts to seek CEO talent from the outside (see Exhibit 4). This lower level of insider appointments may be a reflection of the relatively high number of forced turnovers in Australia, as unplanned turnover events in advance of a planned succession date could precipitate an external appointment if no inside candidate is deemed ready to become CEO.

Exhibit 4 Australian Incoming CEOs by Insider Versus Outsider Status: 2007–2013

21% (6)

29% (12)

57% (13)

52% (14)

50% (18)

40% (14)

33% (15)

79% (23)

71% (30)

43% (10) 2009 79%

48% (13) 2010 80%

50% (18) 2011 81%

60% (18)

67% (31)

2007 Global % 84% of insiders

2008 78%

2012 71%

2013 76% Outsider Insider
Note 1: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information. Source: Strategy& analysis



It is also worth noting that in 2013, as in previous years, Australian companies appointed more CEOs from a diversity of regional backgrounds than their counterparts in other parts of the world. Once a search extends offshore, the likelihood of appointing an external candidate may also increase. The overall increase in insider appointments is good news for Australian businesses. Our research has shown that CEOs appointed from within the company generate higher annualised shareholder returns than outsiders do, both in Australia and globally. Indeed, the gap widened considerably in 2013, when outgoing insider CEOs generated median total shareholder returns of 14.2 percent, compared with just 0.1 percent for outgoing outsiders (see Exhibit 5).

Exhibit 5 Median Total Shareholder Returns1) of Insider Versus Outsider Outgoing CEOs in Australia: 2009–2013

Regionally adjusted annualized total shareholder return 15% 10% 5% 0% -5% -0.1% -3.7% -9.9% 2010 2011 2012 4.1% 9.8% 9.6% 0.7% -2.5% Outsider


0.1% Insider
1) Total shareholder returns are annualised over outgoing CEOs’ tenure . Source: Strategy& analysis.

-10% 2009




Australian companies that planned for their CEO succession events also achieved significantly greater median annualised shareholder returns. Between 2009 and 2013, insiders who left due to a planned succession generated a median return of 9.7 percent during their tenures, while outsiders who left as a result of planned turnover events achieved returns of 4.2 percent (see Exhibit 6). Planned succession and the development of a pool of strong insider candidates for CEO can help companies achieve greater shareholder returns.

Exhibit 6 Outgoing Australian CEOs’ Median Annualised Shareholder Returns1) – Median Tenure, Succession Reason, and Source of CEO: 2009–2013 (N = 165)

Median shareholder return 10% Insider CEOs that leave as part of a planned transition provided a 5% median shareholder return of 9.7% 0% -5% -10% -15% -20% 3.5 4.0 4.5 5.0 Median tenure Outsider/forced Insider/forced

Insider/planned Outsider/planned



1) Total shareholder returns are annualised over outgoing CEOs’ tenure but not adjusted to be relative to the ASX200. Note: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information. Source: Strategy& analysis.



The glass cliff

Australian companies have not been as willing to hire female CEOs as they have been to diversify geographically. Over the past decade, men have dominated the cohort of incoming Australian CEOs, and they continue to do so. Women made up just 2.2 percent of Australia’s incoming class of CEOs in 2013 — that is, one woman in a cohort of 46 — down from 6.7 percent in 2012, when two were appointed out of a cohort of 30 (see Exhibit 7). The total number of women CEOs among companies in the ASX 200 dropped to six in 2013, or 3 percent, down from seven, or 3.5 percent, in 2012.

Exhibit 7 Australia Incoming CEOs – Male Versus Female: 2004–2013 (N = 300)
2 3 2 1 1 2 1 3.7% / (11) 2.1% / (124)











96.3% (289)

97.9% (5.676)











Australia average (2004-13)

Global average (2004-13) Female Male

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



The total number of women appointed as CEOs in Australia since 2004 has exceeded the total who have left the position by 42 percent — although that figure is lower than the comparable figure globally (see Exhibit 8). Despite this net increase in the number of female CEOs over the past decade, however, the trend in Australia has reversed in recent years. The number of female CEOs in 2013’s outgoing class exceeded that of women in the incoming class for the second time in the past five years. On a global basis, in contrast, the relative share of female CEOs in the outgoing class has exceeded that of women in the incoming class only twice, in 2007 and 2008 (see Exhibit 9, page 13).

Exhibit 8 Percentage of Women CEOs by Incoming and Outgoing Classes: 2004–2013



3.7% 2.6% 1.6%


Australian outgoing CEOs

Australian incoming CEOs

Global outgoing CEOs

Global incoming CEOs

Note 1: The total number of all incoming Australian CEOs is 300 and Global CEOs is 3026, and the total number of all outgoing Australian CEOs is 306 and Global CEOs is 3394; in Australia, the total numbers of women are 11 and 8 for incoming and outgoing CEOs, respectively; globally, the total numbers of women are 84 and 56 for incoming and outgoing CEOs, respectively. Note 2: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information Source: Strategy& analysis

So while the low rate of female CEO appointments is an indication that the so-called “glass ceiling” remains in place, female CEOs in Australia are also facing the possibility of falling off what we call the “glass cliff.” That may be in part because, over the past decade, a higher proportion of women CEOs were outsiders compared to their male counterparts, both in Australia and globally (see Exhibit 10, page 13). And outsiders make up the majority of CEOs who leave as a result of forced turnovers, a number that is significantly higher in Australia than around the world. Given the proven importance of planned CEO succession to companies’ overall success, it is unlikely that retention rates among female CEOs will rise until more companies devise succession plans that can identify and develop more female candidates for the CEO position.
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Exhibit 9 Difference Between Share of Incoming Women CEOs and Outgoing Women CEOs: 2004–2013
7% 6% 5% 4% 3% 2% 1.8% 1% 0% 0.0% 1% 2% 3% 4% 2004


5.0% 3.7%

2.6% 1.2% 0.0% Global 0.0% -0.6%


2.3% 2.7% 0.1% 1.4% 0.5%


0.0% -2.2%





-4.0% 2009 2010




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

Exhibit 10 Incoming and Outgoing CEOs by Gender and Insider Versus Outsider Status: 2004–2013
Australia 42% Global 22%









Female (n=19)

Male (n=586)

Female (n=19)

Male (n=586)

Note: Exhibit excludes turnover events resulting from M&A and interims for incoming CEOs and events with incomplete turnover information for incoming or outgoing CEOs Source: Strategy& analysis.



Beyond the C-suite

At the same time, over the past five years, an increasing number of women have joined corporate boards and taken on leadership roles in government, and that may prove another challenge for companies seeking to promote and retain female CEOs. In 2013, women held 15.8 percent of the seats on the boards of ASX 200 companies, up from 13.9 percent in 2012. They accounted for 39.3 percent of the members of the top 34 paid government boards and committees, up from 35.9 percent in 2012. They held 41.7 percent of Australian government board appointments, up from 38 percent in 2012, and made up 47.6 percent of the 1,069 new board appointments in the 2012–13 fiscal year.1 As the role of the professional board member increases in prominence, and the focus on gender equity on the boards of ASX companies and government bodies gains momentum, women in high-level corporate positions may be tempted to opt out of the CEO succession race if success appears less attainable and sustainable than an external board appointment. Again, careful succession planning is critical if companies are to encourage their most promising female executives to remain.



Implications for succession planning
This year’s findings highlight several important considerations for decision makers in Australia as they consider how to manage CEO succession at their companies. Know what matters to your business The compelling economic case for gender equity in the workplace, not just in the C-suite but at lower organisational levels as well, has been widely discussed in recent years.2 Indeed, the lack of gender diversity has been estimated to cost Australian companies AU$1.2 billion (US$1.1 billion) a year in untapped productivity.3 As markets converge, customers go digital, and the war for talent goes global, CEOs and boards must think carefully about their organisation’s diversity strengths and whether a better mix of perspectives will be necessary for future growth and success. To address this moral and economic imperative, top executives at Australian businesses must take action on multiple fronts. Leading organisations have combined an internal focus on changing workforce demographics and potential biases in management practices, systems, and processes with external action to change how they interact with and influence customers, partners, regulators, and the community at large. Executives contemplating a successful CEO succession program must work to understand the kinds of diversity in both perspective and behaviour that will be needed around their leadership tables in the future, and how these considerations should shape the gender diversity profile of their CEO talent pipeline. Articulating these priorities and outcomes within the context of a company’s strategic intent will be critical in creating the momentum required to make the necessary changes in diversity practices, behaviours, and mind-sets at every level.



Set diversity objectives that count The debate about the value of setting diversity targets versus quotas is likely to gain momentum as organisations strive to set measurable diversity objectives against which they can baseline and track their performance. Regardless of whether a company sets directional or absolute diversity targets, it is critical for succession planning purposes to focus on measurable outcomes that go beyond the corporate scorecard and into specific objectives for which the C-suite leadership team will be held jointly and individually accountable. Leading companies, for example, set objectives for the executive leadership team to achieve gender balance in the pool of successors for their own roles, as well as mission-critical roles lower down in the business units most likely to funnel candidates into the CEO succession pipeline. And they complement their succession planning objectives with diversity targets for high-potential leadership development programs, progression and recruitment policies, and programs focused specifically on high-potential women. Many companies have begun by setting objectives for year-on-year improvements in key diversity metrics, in order to make early gains in their diversity efforts. Diversity achievements, if actively measured and reported both internally and externally, should also become a key factor in evaluating and rewarding executive performance. Deepen your talent pool of insiders We have seen that the tenures of Australian CEOs are shortening, and Australian companies continue to hire a relatively high proportion of outsiders. That, coupled with the stronger performance of long-term insider CEOs, points to the importance of developing a deeper pool of talented insiders who can move into the CEO role, whether changes made at the top are planned or unplanned. This can be further augmented by addressing internal biases — conscious or unconscious — that may be limiting the identification, retention, and progression of talented women. Thus, to position themselves to leverage the insider CEO advantage, companies should ensure that they have two or three potential internal replacements for all level 1 and 2 leaders (CEOs and their direct reports) in their talent pipeline. Moreover, in the event of an unplanned succession event, a strong succession plan should have contingencies in place that can identify how insider candidates who may not be fully ready for the role could be supported to address any gaps in their preparation and enable them to make an early, successful transition into the top position.
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As noted, Australian businesses could face the prospect of an increase in unplanned CEO turnover and a shrinking pool of talented female insiders with C-suite potential, if more senior women elect to step off the corporate ladder in response to limited opportunities for CEO succession. Strategies for mitigating this risk include more use of flexible work arrangements; targeted mentoring, development, and progression practices; and a greater focus on finding strong female candidates to fill key functional and senior management roles. Finally, Australian businesses with a global workforce footprint may have the advantage of being able to develop a CEO succession pipeline of highpotential women from regions that have historically had more success with attracting, promoting, and retaining female senior executives. Lengthen your talent-spotting horizon Successfully grooming insider candidates for a leadership role, we have found, may take five years or longer, depending on the depth of the bench and the internal development opportunities companies make available to good candidates. Addressing the gender gap may require an even longer time line. Companies that can successfully identify women with good potential early in their careers will be better able to manage their career progression and retention, and better placed to provide targeted support at those inflexion points where women are most at risk of opting out of the workforce. Be transparent As CEOs spend less time in office, and multiple moves between the C-suite and the boardroom become the norm, companies must develop a compelling value proposition that lays out the scope and expectations of the CEO role if they are to find and field the best pool of internal and external candidates and effectively manage the CEO succession process. Companies must settle on unequivocal succession criteria for the path to the C-suite. And those criteria must be clearly communicated to their top executives and potential external CEO candidates. This is especially important to preserve the integrity of decisions where factors such as diversity may be perceived as providing some candidates with an unfair advantage. Finally, changes in the regulatory environment and shareholder expectations that reshape the roles and responsibilities of board members and CEOs may lead to changes in CEO succession requirements. These changes may affect the way in which the CEO succession process is managed, and bring new candidates onto the radar while making earlier candidates better suited to other roles.
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Our 2013 findings highlight the importance for Australian businesses of taking a planned approach to CEO succession, including an increased focus on improving the gender balance in their CEO succession pipeline and the development of a deeper pool of CEO-ready inside talent. Such a plan will inevitably expand the pool of talented CEO prospects and likely increase the appointment and retention of female CEOs. When applied effectively, these two talent management levers, we believe, will drive improved corporate performance and be a source of sustainable competitive advantage in the region and around the world. And they will create a multiplier effect on the company’s overall ability to win the war for talented emerging and future leaders.

How we conducted the study
The 2013 Australian Chief Executive Study identified all companies listed in the ASX 200 since 2000, a data set spanning 304 companies. We used annual reports and press searches to learn if and when a CEO turnover event had taken place for all these companies since 2000, identifying every company’s CEO for each fiscal year, confirming the turnover event, and determining the reason. Factiva helped us identify announcements of retirements or new appointments of CEOs, as well as presidents and managing directors, for the ASX 200 companies. Total shareholder return data for a CEO’s tenure was sourced from Bloomberg and includes reinvestment of dividends, if any. Each company that experienced a CEO change was analysed to confirm that the change had occurred, the name of the outgoing executive, and the true reason for the turnover event. Consistent with the global study, three reasons were identified for a CEO transition event in Australia: • Regular transitions, which included planned retirements, the CEO’s acceptance of a position elsewhere, health-related departures, or death in office • Merger-based transitions, in which a CEO’s job was eliminated after an acquisition • Forced transitions, which included any departure initiated by the board, attributed by the media to poor financial or managerial performance, or where the company was clearly underperforming but the departure was described as being for “personal reasons” For certain data points in the Australian study, data from 2009 to 2013 was used rather than the 2013 data used in the global study. This was done to account for the small sample size in Australian CEO succession data, compared with the much larger global data set.





Boardroom Diversity Index 2013, Women on Boards.

“Empowering the Third Billion: Women and the World of Work in 2012,” Strategy&, 2012.

“Baselining Gender Equality – Thinking beyond Compliance,” PwC, Mar. 2014.



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