Booz & Company has published its latest look at CEO succession. The title for this annual study is “The New CEO’s First Year,” but as usual the firm gives us a lot of food for thought. Here are three things that jumped out at me.
The rate of turnover is up from last year, but it’s back to the historical average for the seven years that Booz has done this study. In other words, don’t get all excited about the increase in turnover alone.
The vast majority of CEO turnover is planned. That’s true for more than two thirds of the CEO succession in 2011. In fact, only about 15 percent of the turnover resulted from dismissal for poor performance or bad conduct. This could be an indicator that succession planning is doing what it’s supposed to do. But, on the other hand …
Companies are hiring more outsiders as CEO. In 2007, companies hired 14 percent of CEOs from outside. In 2011, that had climbed to 22 percent. That’s not good news for investors or the people who work for companies, especially those responsible for talent management.
Historically, outsiders don’t do as well as CEOs who come from inside the company. That only makes sense. Outsiders have to learn the culture and cadence of the company they’ve joined. That not an easy process, especially with pressure to perform right away.
Historically, CEOs who come from outside don’t last as long in the job. The average tenure for insiders is just about a year longer than for outsiders. That means more churn and more uncertainty for people in the company. Consider the recent history of HP or Yahoo.
That can mean one or both of two things for the company’s talent management. It may mean that talent development and succession planning aren’t working. Or, it may mean that the board doesn’t have confidence in the system, whether it’s working or not.
That’s what I took away from the study. I suggest that you also read the insights of two other observers. Jena McGregor’s article in the Washington Post is titled “The rate of CEO change,” but she looks at much more than that single number. In the Economist, the Schumpeter columnist analyzes two big bets that companies seem to be making in a column titled “Wheel of Fortune.”
