The Diversity Imperative: 14th Annual Australian Chief Executive Study (Media report)

This report provides insight into the 2013 Australian Chief Executive Study findings, compares the results to the global market and identifies trends. Our analysis looks at trends relating to performance and tenure; reasons for CEO turnover; and the number of insider appointments versus outsider appointments.

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The Diversity Imperative
14th Annual Australian Chief Executive Study

The Strategy& Australian CEO Study analyses trends in Australian CEO succession

• Annual study: we now have 14 years of continuous data on CEO successions in: – the world’s largest 2,500 listed companies – ASX 200 companies (listed throughout the course of the study since 2000 = 304 companies) • Strategy& is one of the authoritative sources on CEO successions for Tier 1 media • The study is evolving to have more commercial impact with CEOs and boards • This year’s study looks at trends in CEO successions across regions, industries, insiders/outsiders (among other analyses)… • … and looks in-depth at women CEOs of the last ten years • A related s+b package will explore the evolution of CEOs over 100 years and the background and skills we think CEOs will have in 2040
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The 2013 study looks at turnover, performance and gender

1 2 3 4 5 6

CEO turnover is up and continues to exceed global levels Tenure has flattened and remains questionably low Top performing companies are planning turnover and drawing from within Insiders are still on the rise and continue to perform better Male CEOs dominate and female retention is in decline Australian women are forced out more often than male peers – a consistent global trend

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In 2013 Australian CEO turnover rose and exceeded the global average for the 7th successive year
Global and Australia1) CEO Turnover Rate
2000-2013
25% 22.3 20% 14.7 12.9 11.3 10.9 11.3 12.1 10.8 12.6 11.5 15.4 14.2 23.1

18.0
14.4 13.4 13.8 14.4

15.6 13.1
14.3 11.6 14.2

16.4

15.2
15.0 14.4

15%

10%

9.8

5%

Global Australia

0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: Strategy& 2013 Chief Executive Study analysis. 1) “Australia” sample includes companies in the ASX200 Strategy&

This increase in Australia was driven by higher levels of planned and forced turnover

Australian CEO succession reasons as a percentage of turnover events
2000-2013 Australian CEO turnover events as a percentage of turnover events
25
24%

26
19%

27
22%

28
14%

26
27%

31
16%

30
17%

41
29%

50
16%

35
29%

33
15%

58

42
29%

50
8%

38% 18%

24% 12%

16% 38%

29% 26% 19%

19%

27% 12% 40% 17% 21%

M&A Forced
68%

60% 42%

52%

57%

65% 54%

57%

59% 44%

67% 54% 41%

60%

Planned

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: Strategy& 2013 Chief Executive Study analysis

Strategy&

Top performing Australian companies plan CEO succession and replace from within

Australia incoming CEOs by insider versus outsider status; Australia outgoing CEOs by forced versus planned turnover and annualised shareholder returns1)
2009-2013
Outsider Insider

44% 44% 24% 52% 56% 56% 44%
Incoming Outgoing Outgoing Total Forced Planned 100% 39% 61%

40% 50% 33% 27%

76%

56%

50% 48% 50%

50% 25% 75%

67%

60% 78% 22%

73%

Incoming Outgoing Outgoing Total Forced Planned 100% 32.4% 67.6%

Incoming Outgoing Outgoing Total Forced Planned 100% 10% 90%

Incoming Outgoing Outgoing Total Forced Planned 100% 21.4% 78.6%

Bottom quartile

Third quartile

Second quartile

Top quartile

1) Total shareholder returns are annualised over outgoing CEOs' tenure. Note: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information. Source: Strategy& 2013 Chief Executive Study analysis Strategy&

However, overall forced turnover in Australia is higher than globally

Australia and global outgoing CEOs by forced versus planned turnover and annualised shareholder returns1)
2009-2013
Outsider Insider

56%

27% 50%

23% 73% 44% 50% 77% 25% 75%
Australian Outgoing Forced 39% Global Outgoing Forced 32% Australian Global Outgoing Outgoing Forced 32.4% Forced 19% Australian Outgoing Forced 10%

78% 38% 62%
Global Outgoing Forced 11%

35% 65%

22%
Australian Outgoing Forced 21.4% Global Outgoing Forced 14%

Bottom quartile

Third quartile

Second quartile

Top quartile

1) Total shareholder returns are annualized over outgoing CEOs' tenure. Note: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information. Source: Strategy& 2013 Chief Executive Study analysis Strategy&

Australian CEO tenure was constant in 2013 and remained below global levels

Outgoing CEO Median Tenure (Years in Office)
2006-2013
Global Median Years

6.1 5.7

5.9 5.2 5.5 4.9 4.7 5.0 5.4 5.0 4.7 5.0 4.8 4.2

Australia Median Years

5.0 4.3

Australian Median 5 years

2006

2007

2008

2009

2010

2011

2012

2013

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& 2009-2013 Chief Executive Study analysis

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Australian insider CEOs have consistently delivered higher shareholder returns than outsiders...
Median total shareholder returns1) of insider versus outsider outgoing CEOs
2009-2013
15%

14.2% Insider 9.8%

Regionally adjusted annualized total shareholder return

10%

5%

4.1%

9.6%

-0.1%
0% 2009 -5% 2010 2011

0.7%
2012

0.1% Outsider
2013

-2.5% -3.7% -9.9%
-10%

1) Total shareholder returns are annualised over outgoing CEOs' tenure . Source: Strategy& 2013 Chief Executive Study analysis

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...and companies with planned CEO successions, that leveraged internal talent, posted the best annualised returns
Outgoing Australian CEO – Median Annualised Shareholder Returns1)
Median Tenure, for Succession Reason and Source of CEO, Total 2009 – 2013: N = 165
10%
Insider CEOs that leave as part of a planned transition provided a median shareholder return of 9.7%

Median Shareholder Return

Insider/Planned Outsider/Planned

5% 0%

Outsider/Forced
-5% -10% -15% -20%

Insider/Forced

3.5 3.6 3.7 3.8 3.9 4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 5.0 5.1 5.2 5.3 5.4 5.5

Median Tenure
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: Booz & Company 2012 Chief Executive Study analysis Strategy&

The proportion of internally appointed CEOs in Australia continued to rise in 2013

Australian incoming CEOs by insider versus outsider status
2007-2013
100% 21% (6) 75% 29% (12) 57% (13) 40% (12) 33% (15)

52% (14)

50% (18)

50% 79% (23) 25% 71% (30) 43% (10) 60% (18) 67% (31)

48% (13)

50% (18)

Outsider Insider

2007 Global % of Insiders 84%

2008 78%

2009 79%

2010 80%

2011 81%

2012 71%

2013 76%

Note 1: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information. Source: Strategy& 2013 Chief Executive Study analysis

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A higher proportion of both men and women insiders CEOs were appointed globally than locally
Incoming and outgoing CEOs by gender and insider versus outsider status
2004-2013
Australia Global 22% 42% 39% 35%

Outsider Insider

78% 58% 61% 65%

Female (n = 19)

Male (n = 586)

Female (n = 124)

Male (n = 5676)

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& 2009-2013 Chief Executive Study analysis

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Men continue to dominate the class of incoming CEOs in Australia and elsewhere

Australia Incoming CEOs – Male versus Female
For years 2004-2013; N = 300
Female Male

1

3

2

1

1

2

1

3.7% (11)

2.1% (124)

19

25

24

26

38

23

26

35

28

45

96.3% (289)

97.9% (5,676)

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Australia Average (2004-13)

Global Average (2004-13)

Note: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information Source: Strategy& 2013 Chief Executive Study analysis

Strategy&

Over the past decade the net number of female CEOs in Australia has grown, but not as much as it has globally
Percentage of women CEOs by incoming and outgoing classes
2004-2013
+42.3% 3.7% +75.0% 2.8%

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& 2009-2013 Chief Executive Study analysis

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Retention of Australian women CEOs has been in decline and is trending more negatively
Difference between the share of incoming women CEOs and outgoing women CEOs 2004-2013
Global 7.0 6.0 5.0 4.0% 3.0% 2.0% 1.0% 0.0 -1.0% -2.0% -3.0% -4.0 -4.0% -2.2% 1.8% 1.2% 0.0% 0.0% 0.0% -0.6% -0.4% 0.1% 0.0% 2.6% 2.3% 3.7% 2.7% 1.4% 0.0% 0.5% 6.9% 5.0% Australia

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Note: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information Source: Strategy& 2009-2013 Chief Executive Study analysis

Strategy&

Women CEOs – in Australia and globally -are more likely to be forced out of office than men
Outgoing CEOs by gender and succession reason
2004-2013
11% 27% 23% 38% 13%

27%

21% 27%

45%

56%

51%

60%

M&A Forced Planned

Female (Australia) (n = 11)

Male (Australia) (n = 385)

Female (Global) (n = 56)

Male (Global) (n = 3319)

Source: Strategy& 2009-2013 Chief Executive Study analysis

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Australian businesses need to focus on succession management that attracts, retains and develops C-suite ready women
Tips For CEO Succession Planning

1 2 3 4 5

Know what matters to your business Set diversity objectives that count Deepen your talent pool of insiders Lengthen your talent spotting horizon Be transparent

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