Booz & Company Chief Executive Study Finds Steep Rise in Planned CEO Turnovers as Companies Take Active Control of Their CEO Succession Planning
Leading global management consulting firm Booz & Company today announced the results of this year’s Chief Executive Study, finding the highest share ever of planned CEO successions.
“During the economic crisis, boards took a reactive approach to CEO turnover and postponed CEO transitions. Now they are actively planning CEO successions—companies are looking to build on the stability of a stronger economy and move forward with needed changes,” said Gary L. Neilson, Booz & Company senior partner and coauthor of the study. “Planned turnovers are at the highest rate ever, and insider CEOs make up the majority of new CEOs, indicating companies are taking a more thoughtful approach to ensure the right leaders are in place.”
The annual study of CEO changes at the largest 2,500 public companies in the world, revealed that the CEO turnover rate in 2012 was 15 percent—the second-highest since 2000, lower only than in 2005. Furthermore, companies are actively planning their CEO successions: The share of planned turnovers, at 72 percent of all turnover events, is the highest in the 13-year history of the study.
“The Middle East region is no exception to this global trend of increasing planned turnovers,” explained Bahjat El-Darwiche, Booz & Company partner. “In general, organizations are becoming more prescriptive on the type of skills that a new CEO should possess. In fact, board of directors are becoming increasingly demanding on the CEO’s ability to develop and drive sustainable capabilities within the organization, as well as to contribute to supervisory and executive governance,” he added.
The Booz & Company study examined the rate of, reason for, and geographic and industry distribution of chief executive changes among the world’s 2,500 largest public companies. This year’s report, “Time for new CEOs: The 2012 chief executive study” focused particularly on who the new leaders are and where they came from.
Companies are becoming more proactive about the CEO succession process. Companies are now planning carefully to ensure they have the leaders they need. Planned successions made up 72 percent of all 2012 successions (up from 69 percent in 2011), and forced turnovers were at 19 percent, their second-lowest share ever. This shift indicates that companies are now able to take a more thoughtful approach to transitions.
The proportion of female CEOs saw a slight increase in 2012. Only 5 percent, or 15, of the incoming class of CEOs in 2012 were women—which is a notable rise from the 3 percent average over the prior three years, but still only a tiny share. “Despite major success cases, gender diversity at CEO level remains a challenge in the region,” noted El-Darwiche.
The “Global CEO” is more of a myth than a reality. Most companies seem to be seeking familiarity in their new CEOs. In 2012, 71 percent of new CEOs were insiders—people promoted from within. Companies also tended to hire leaders native to their company’s headquarters country; 81 percent of companies hired CEOs from the company headquarters country and an additional 9 percent hired CEOs from a different country but the same region as headquarters. Additionally, this year’s study found that 25 percent of new CEOs had worked at only one company for their whole career.
“When hiring new CEOs with global work experience, Western European companies stood out in 2012, with 60 percent hiring CEOs who have experience in regions outside their company’s headquarters. In addition, 67 percent of newcomer CEOs who are Western Europeans had global working experience,” said Per-Ola Karlsson, Booz & Company senior partner and coauthor of the study. “It’s interesting to note, Western Europe is the only region that supplied new CEOs to all other regions.”
Companies in Brazil, Russia, and India had the highest increase in turnover rates in 2012.
In 2012, CEO turnover rates increased from 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 in 2007–11 to 23.9 percent in 2012.
Although companies in Western European countries did see an increase in their turnover rate, they had the lowest increase of any region outside Japan. Turnover in Western Europe increased by 3.5 percent, from 14.2 percent in 2007–11 to 14.7 percent in 2012.
Most new CEOs don’t have MBAs.
All but one of the new CEOs in 2012 held an undergraduate degree, but few had gone on to get an MBA or Ph.D. Only 29 percent of the new CEO class in 2012 had an MBA, and 9 percent a Ph.D. However, having an MBA may slightly accelerate the career path of a CEO, as the median age of incoming CEOs in 2012 with an MBA was 52, just slightly lower than the median age of CEOs without, which was 54.