CEO turnover hit a record high of 17% in 2018 but there is a group of executives holding steady.
According to the 2018 CEO Success Study issued by PwC’s Strategy&, while the median tenure of a CEO has been five years, 19% of all CEOs remain in position for 10 or more years, consistently, over the period the study has been conducted .
The study has analysed CEO succession at the world’s largest 2 500 public companies over the past 19 years.
Despite disruption, intense competition and eager investors, the median tenure within the group is 14 years with these long serving CEOs who have better performance and are less likely to be forced out than not long serving CEOs.
Jonathan Cawood, head of PwC Africa Strategy&, says: “CEO succession is one of the most important responsibilities of the board of directors. The CEO is responsible for setting the company’s strategy, driving its execution and ‘setting the tone at the top’.
“Many companies are not fully prepared for CEO departures even though succession planning is one of their main responsibilities,” he adds. “Too often boards are caught unprepared when their CEOs step down – whether they are retiring, moving on to other opportunities or leaving under pressure. Transitions cause uncertainty.
“When the board is looking to find a suitable replacement, it is most likely that the succession process will disrupt operations, make employees and shareholders nervous and can even fuel negative publicity.”
Anelisa Keke, senior manager in PwC’s people and organisation division, adds: “Today more than ever, CEO succession planning is a rising concern – CEOs who stay in their role until retirement are becoming the exception rather than the rule. Well-developed and executed succession plans can mitigate the risk of a leadership vacuum when a CEO retires or resigns, which may result in a loss of investor confidence.
“Good succession planning will also need to be supported by appropriate remuneration packages and incentives. According to our recent Executive directors: Practices and remuneration trends report, it is critical for the interactions between the remuneration committee and the nomination committee to be properly coordinated when determining CEO succession planning, and how this plan can influence CEO pay.”
2018 also showed a rise in the share of CEOs who were forced out of their positions for ethical lapses. In fact, more CEOs (39%) were forced out for ethical lapses rather than financial performance or board struggles, a first in the study’s history. This number rose 50% as compared to 26% in 2017.
The study defines dismissals for ethical lapses as the removal of the CEO as the result of a scandal or improper conduct by the CEO or other employees. Examples include fraud, bribery, insider trading, inflated resumes, and environmental disasters. The rise in these kinds of dismissals reflects several societal and governance trends. These include, among others, more intervention by regulatory and law enforcement authorities, new pressures for accountability of CEOs, as well as an increasing propensity by boards to adopt a zero-tolerance stance toward executive misconduct.
Gerald Seegers, head of people and organisation for PwC Africa, adds: “Boards of directors, institutional investors, governments, the media, and other stakeholders are holding chief executives to a far higher level of accountability for corporate fraud and ethical lapses than they did in the past. Our research shows that companies are continuing to improve both their processes for choosing and replacing CEOs and their leadership governance practices.”
Turnover among CEOs at the world’s 2 500 largest companies soared to a record high of 17.5% in 2018 – 3 percentage points higher than the 14,5% rate in 2017 and above what has been the norm for the last decade.
It is notable that the longer the long serving CEO spends in office, the worse the successor CEO who replaced them performed. In the last two years, here has been a slight uptick in the share of CEOs who have international work experience. The share of incoming CEOs with an MBA has also steadily increased over the last seven years (2012: 30%; 2018: 33%).
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%.
The global media tenure for all CEOs has remained steady at five years for the last decade, and the 53-year median age of incoming CEOs has also been steady over the last decade.
The share of incoming women CEOs was 4,9% down slightly from the record high of 6% 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 9,3% spikes 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 women CEOs at 9,5%, followed by communication services and financial services at 7,5% and 7,4% respectively.