Chief executives whose predecessors were highly successful and long-serving are likely to find that they have shorter tenures, worse performance outcomes and are more often forced out of office than the CEOs they replace.
According to PwC’s Strategy& 2018 global study of CEOs’ success, life for the average chief executive has become more precarious than ever before, with CEO turnover hitting a record high of 17.5% last year. In 2017, the turnover rate was 14.5%.
The median tenure of CEOs among the world’s 2,5000 largest companies is just five years.
This short shelf life applies in particular to newer CEOs. The research found that nearly half of successor CEOs received a lower performance quartile rating than their predecessor. Indeed, 69% of successors to a long-serving CEO who was regarded as a top performer ended up in the bottom two performance quartiles.
“Succeeding long-serving CEOs is clearly very challenging,” commented Per-Ola Karlsson, leader of Strategy&’s organisation, change and leadership practice in the Middle East.
“Their successors typically both deliver lower returns to shareholders and are noticeably more likely to be dismissed than the legend they succeeded as well as their peers.”
Another reason for the higher turnover rate is the number of chief executives forced out of their positions by ethical lapses. Strategy& defines dismissal for ethical lapses as the removal of the CEO as a result of a scandal or improper conduct – such as fraud, bribery, insider trading, environmental disasters, inflated resumes and sexual indiscretions – by the CEO or other employees.
Ethical lapses has now taken over as the number one excuse for getting rid of the CEO, rather than financial performance or boardroom battles – a first, says PwC, in the study’s 19-year history.
Even though the chief executive’s tenure is likely to be short, the research found that 19% of CEOs managed to stay put for 10 or more years. “Despite disruption, intense competition and eager investors,” it says, “the median tenure within the group is 14 years with these long-serving CEOs who also have better performance and are less likely to be forced out than not-long-serving CEOs.”
CEOs are more likely to last longer in North America than anywhere else in the world, with the probability of survival at 30%. Elsewhere, the probability is markedly lower, with 19% in Western Europe, 9% in Brazil, Russia and India (the BRI countries) and Japan, and 7% in China.
The best sector for CEOs to work in was healthcare where the turnover was 11.6%. The worst, with a turnover of 24.5%, was the communication services sector.
The study also noted that women CEOs are still not gaining ground. The share of incoming women was 4.9% in 2018, down from the record high of 6% in 2017.
Interestingly, the utilities industry boasted the largest number of women CEOs (9.5%), followed by communication services (7.5%) and financial services (7.4%).
This article was originally published in Economia magazine. For more information go to: https://economia.icaew.com/news/may-2019/new-ceos-face-bumpy-ride-and-shorter-shelf-life