Suggestions for aspiring CEOs

16th Annual CEO Succession Study: Suggestions for aspiring CEOs

Passage into the top job in a leading Australian company requires significant vision, planning and sustained effort. Prior studies have focussed on providing recommendations to boards and investors – this year we provide tips for aspiring CEOs (Exhibit 1).

Exhibit 1

Tip 1: Target high performance companies at mid-career level

Our findings show that leading Australian organisations are increasingly making internal promotion and selection decisions for the top job. In 2015 the highest quartile performing companies hired twice as many insiders into the CEO position, compared to outsiders. Aspiring CEOs will benefit from targeting a market leading company at least two promotion points below the C-suite.

Tip 2: Watch for organisations with a history of longer tenured CEOs

To our higher performing organisations, stability is key. The risk of perceived instability through signals of change, such as CEO turnover, can reduce investor confidence and erode shareholder value. Moreover, there is an increased drive for growth and purposeful transformation across leading Australian organisations, favouring retention of CEOs who reinforce investor confidence. Aspiring CEOs will benefit from targeting an organisation with a CEO whose tenure is greater than eight years early in their career and staying with the organisation for the long run. Organisations with long term CEOs also, tend to promote internal candidates.

Tip 3: Build skills in major scale transformation expertise

Our research shows that Australian organisations are constantly undergoing change, with a large proportion centred on major scale business transformation programmes. Aspiring CEOs should seek to develop a track record of leading successful large scale transformations to increase their ability to deliver TSR when they are appointed into the top job.

Tip 4: Establish and maintain a mentoring relationship with a former CEO – particularly if you are an Outsider

In Australia, outsider CEOs tend to be pushed out twice as often as insider CEOs at a time of distress and are more likely to deliver lower TSR than insiders in Australia and globally. However, there have been some years where outsider CEOs have delivered significantly greater TSR than insiders in Australia, and because of this, hiring an outsider could be an attractive proposition for companies. As a result, we see that Australian Boards are starting to purposefully select outsiders, as part of succession planning – rather than turning to an outsider option without pre-planning.

To help ensure faster orientation into a new organisation and its ways of working, outsider CEOs should seek to build strong relationships internally as soon as possible, and in particular establish a mentoring relationship with a former successful CEO from the same company; helping the outsider to become quickly attuned to informal organisational ways of working and networks which can be leveraged to achieve the intended company impact and necessary TSR.

Tip 5: Top female contenders should consider Australia as a prime destination

Gender diversity is a top priority on the agenda of almost all major organisations globally. However, successful global organisations do not reflect this agenda in 2015 (Exhibit 2). The US/Canada in particular and also the overall global average proportion of female CEO entries is significantly less than in ASX companies. Since 2010 Australia is the only region to show an increasing trend in female CEO appointments. The global average has decreased to 3% compared with 9% in Australia for the proportion of female hires in 2015, whilst US/Canada dropped to an all-time low of 1%. As a result of this trend, we see Australia as a prime destination for top female contenders seeking to progress into the CEO role.

In Australia, outsider CEOs tend to be pushed out twice as often as insider CEOs at a time of distress.

Exhibit 2: Global vs. Australian percentage of Incoming Female CEOs, 2010-2015