CEO turnover hit a record high of 17% in turbulent 2018, but one group of executives has been holding steady, according to the 2018 "CEO Success" study by Strategy&, the strategy consulting business of PricewaterhouseCoopers.
The study, which analysed CEO succession at the world's largest 2,500 public companies over 19 years, reports that while the median tenure of a CEO was five years, 19% of all CEOs remained in the position for 10 or more years over the period analysed.
Despite disruption, intense competition and eager investors, the median tenure of those in the 10-years-plus group is 14 years. These long-serving CEOs who also deliver better performance are less likely to be forced out than their peers with shorter tenures.
By region, North American CEOs hold a significant margin in the probability of becoming a long-term CEO at 30%, followed by Western Europe at 19%, Japan and the BRI countries (Brazil, Russia and India) at 9% and China at 7%.
The share of CEOs who were forced out of their positions for ethical lapses also rose last year. In fact, more CEOs (39%) were forced out for ethical lapses rather than financial performance or board struggles, a first in the history of the study. This number rose 50% as compared to 26% in 2017.
ROUGH ROAD AHEAD
Successors to long-serving CEOs are not faring as well and are likely to have shorter tenures, worse performance and more often be forced out of office than the CEOs they replaced. Nearly half of successor CEOs moved down a performance quartile or more as compared to their predecessors. Some 69% of successors to a long-serving CEO in the top performance quartile ended up in the bottom two performance quartiles.
"Succeeding long-serving CEOs is clearly very challenging," said Per-Ola Karlsson, partner and leader of the organisation, change and leadership practice in the Middle East at Strategy&. "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."
Turnover among CEOs at the world's 2,500 largest companies rose to a record high of 17.5% in 2018 -- three percentage points higher than in 2017 and above what has been the norm for the last decade.
Turnover rose notably in every region in 2018 except China, and included a large increase in Western Europe. Turnover was highest in "other mature" economies (such as Australia, Chile and Poland), at 21.9%, and nearly as high in Brazil, Russia and India (21.6%). The next-highest turnover numbers were in Western Europe (19.8%), and the lowest were in North America (14.7%).
Among industries, turnover was highest in communication services companies (24.5%), followed by materials (22.3%) and energy (19.7%). Healthcare saw the lowest rate of CEO turnover in 2018, at 11.6%
WOMEN AT THE TOP
The share of incoming women CEOs was 4.9%, down slightly from the record high of 6.0% in 2017. However, the trend has been upward since the low point of 1% in 2008.
Unlike in 2017 when the record high was driven by a 9.3% spike in incoming CEOs in the US and Canada, the largest percentages in 2018 originated in Brazil, Russia, India and China and other emerging countries.
The utilities industry had the largest share of female CEOs at 9.5%, followed by communication services at 7.5% and financial services at 7.4%.
Thai companies have also seen a rise in CEO turnover in the past year, similar to the global trend found in the study, said Vilaiporn Taweelappontong, consulting lead partner for PwC Thailand.
Most are passing the baton from parents to next-generation leaders or finding the right successor to replace a CEO whose tenure will soon come to an end.
"The No.1 challenge for incoming CEOs, especially those succeeding long-serving CEOs, is how well-prepared they are to continue existing policies while also being able to identify potential growth strategies to drive their organisation in a changing business landscape," she said.
"Managing the expectations of various stakeholders, including the internal workforce, will also be critical for any new CEOs. We know each CEO has his or her own management style. So it's important to make sure that a constant flow of communication is always there about the company's vision, or any changes in policies and strategies.
"This includes communicating to your people what's coming next, particularly the shape of the company's digital adoption and developing employee skills. All of these will help reduce resistance and create a smooth transition to new leadership, eventually leading to greater efficiency and sustainability."
To read the full report, visit https://pwc.to/2qp4p4g
