Companies choose leadership continuity over change

You'd think the financial crisis would have put paid to a few CEOs - but the opposite seems to be true.

by
Last Updated: 31 Aug 2010

Fewer US and European companies opted to change their CEO in 2008 than in the previous year, according to a new study by consultancy Booz & Company. Despite the financial turmoil hammering the reputations of some top corporate leaders, the number of CEO departures actually fell 1.9% in Europe and 0.9% in North America – even as it climbed in the rest of the world. In these turbulent times, perhaps our corporate behemoths are deciding that it's better to maintain some continuity in the corner office. Or maybe it’s a case of ‘better the devil you know’...

The research, which is based on a study of the world's largest 2,500 firms, found that Western companies were much less inclined to change their CEOs last year than you might have thought, given how badly the crisis has exposed some corporate strategies. Worldwide, the rate of CEO turnover was 14.4%, marginally up from last year's 13.8%. About half of these departures were unplanned - i.e. for poor performance, ethical issues, fall-outs, or mergers - which may sound like a lot, but it's actually pretty consistent with previous years. (North American bosses are actually statistically safer in their jobs than they've ever been, which strikes us as a bit odd.)

There are some notable exceptions to the general rule, however. The financial services industry lost 18% of its CEOs in 2008, well up on the long-term average of 11.2% - not least because governments have been actively shunting the likes of Sir Fred Goodwin out the door. Energy sector bosses were almost more likely to face the axe, as the oil price bounced around manically - the number of forced departures was twice as high as in previous years. The UK was also slightly ahead of the norm, with overall turnover of 14.7%.

One possibility is that the lack of CEO movement reflects a lack of 'bench strength' (if you'll forgive us using that horrid term) - i.e. that despite their much-vaunted succession plans, companies just don't have a better or more qualified alternative to turn to in troubled times. To be fair, this is partly unavoidable - some up-and-coming bosses won't have been through a financial upheaval like this (at least in a leadership role), so they're always going to look inexperienced in comparison to the present incumbent.

Indeed, the figures suggest that experience is what companies really want: the average age of incoming CEOs this year was 52.9, two years older than the long-term average, while the proportion of leaders who have previously served as CEO elsewhere has doubled to 20%. Clearly firms want a steady hand at the tiller – although when the seas calm again, there may well be a few more bosses thrown overboard.


In today's bulletin:
Sainsbury profits as customers go back to Basics
Bank of England pours cold water on recovery optimism
EU fine to chip one billion Euros off Intel as Barrett steps down
SMEs: financing not the biggest problem?
Companies choose leadership continuity over change

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