CEO Turnover Declines Despite Economic Storm

Facing the worst economic crisis since the Great Depression, corporate boards in Europe and North America are holding fast to their current CEOs, according to Booz & Company’s annual survey of CEO turnover. The decline in succession rates in these two regions contrasts with the slight rise in CEO departures globally. The financial services and energy sectors, most affected by the turmoil of 2008, saw outsized increases in CEO exits spurred not only by performance, but also by government interventions and volatility in commodity markets.

Now in its ninth year, Booz & Company’s study of global CEO succession patterns examines the degree, nature and geographic spread of leadership changes among the world’s 2,500 largest publicly traded companies. Included this year for the first time is data on the incoming class of CEOs that sheds light on the career paths of executives who advance to the top of their organisations.

CEO Succession Survey 2008: Stability in the Storm concludes that the nature of the recession is leading boards of directors of Western companies to stick with the leaders they know. The overall rate of turnover was 14.4% (compared with 13.8% in 2007). CEO departures fell 0.5 percentage points in North America and 1.9 percentage points in Europe in 2008 over 2007, while globally that figure climbed 0.6 percentage points. In the UK, the total rate of succession remained steady at 14.7%.
Among the key findings of the survey:
  • The reasons for CEO departures were remarkably consistent with past years. Of the 361 successions among the companies studied, 50% were planned (retirement, illness, long-expected changes), 35% were forced (CEO removed for poor financial performance, ethical lapses or irreconcilable differences) and 15% were prompted by mergers. By comparison, in 2007, 346 CEOs left their companies; 49% of departures were planned, 31% were forced, and 20% followed a merger.
  • Financial services and energy led all other industries in turnover rate increases. The financial services industry saw 18% of its CEOs lose their jobs in 2008, breaking with the patterns of previous years where an average of 11.2% of CEOs left. The rate of forced successions in 2008 was 8.8%, more than double the 11-year average of 3.4%. Forced turnover in the energy sector also hit a record high, with 5.6 % of its companies’ CEOs ousted, versus the typical 2.7%, as enormous commodity price volatility in 2008 ended the comfort of steady high returns for much of the 2000s. In the UK, healthcare and telecommunications services companies had the highest succession rates in 2008 (40%).
  • The average age of this year’s incoming CEO class is 52.9, nearly two years older than the average 51.0 years of age, which has held steady over the past decade. In the UK, the incoming CEO class has an average age of 48.6 years old.
  • Nearly 20% of CEOs have had held the top position before, almost double the 9.8% average rate for the 11 years Booz & Company has studied (1995, 1998; 2000-2008). Importantly, 65.6% of new CEOs have run a business before, with 18.9% having served as CEOs, 27.4% as business unit leaders, and others who had been regional heads, presidents or chief operating officers.
  • In Asia, forced removals nearly doubled from 3.8% to 6.1%; in Japan rates jumped nearly four-fold, from 0.8% to 3.1%.
The report outlines seven steps that today’s new CEO class need to take to steer a course through the current turbulence and position their companies for long term success such asresetting expectations of how the business will work, affirming or changing the leadership team within 60 days, keeping an ear to the market through customers and suppliers, and engaging the board around its expectations.Given the unprecedented conditions in the global economy, the challenge of developing leadership is urgent, particularly for the next generation of CEOs.