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Published: May 28, 2013
 / Summer 2013 / Issue 71

 
 

“It’s Time for a Change”

CEO turnover is trending high, but in a more planned and stable manner.

The past year was a busy one for companies looking for new leaders. Fully 15 percent of the world’s 2,500 largest public companies made a change at the top in 2012. This number, 375 companies, was the highest total since 2005, and the second highest in the 13 years’ worth of data we’ve gathered since 2000. Given all this turnover activity, you might expect higher levels of chaotic, reactive behavior. But almost three-quarters of the companies planned their succession events carefully, an increase of more than 50 percent since 2006.

The 2012 Chief Executive Study Overview Video

Additional insights from the authors on this year’s unprecedented number of planned turnovers and on who the incoming CEOs are. For more from the 2012 Chief Executive Study, click here.

These numbers represent a sharp contrast to the succession activity during the depths of the Great Recession; in 2010, for example, the rate of turnover was only 11.6 percent (see Exhibit 1). In other words, these results suggest that companies have moved toward more overall leadership stability, not less, in the past few years. Companies in general may be more willing to make changes at the top deliberately, in a more systematically planned fashion, in search of increased competitive advantage rather than recovery from a crisis. Whether these choices prove to be the right ones is harder to judge, of course, but if experience is any guide to future results, the attention to planned succession will pay off.

Insiders and Outsiders

Another indicator that companies were looking for real change in 2012 was the proportion of CEOs hired from outside the company. Overall, the 2012 crop of new CEOs included a larger percentage of outsider recruits than past years did. The share of new insider CEOs dropped considerably, from an average of 80 percent between 2009 and 2011 to just 71 percent in 2012. A full 30 percent of companies that made a planned change in their CEO hired an outsider in 2012, compared with an average of just 18 percent in the previous three years. Meanwhile, the number of outsiders brought in as a result of forced changes stayed about the same as in 2009–11, at just under 30 percent.

Clearly, more companies feel sufficiently stable to take a risk on a leader they may not know well. But at the same time, they are carefully evaluating the potential risks that come with hiring someone from outside. And they may well be mitigating the risk by hiring outsiders from the same industry—just 44 percent of outsiders joined their new company from a different industry.

As in previous years, the size of the company correlated with different CEO succession patterns. Among the 250 largest companies with new CEOs, just 17 percent of CEOs were hired from outside the company, compared with 31 percent of their counterparts among the 2,250 smaller companies. This suggests that smaller companies were more willing to take a risk than their larger brethren (see Exhibit 2). Larger companies had a higher proportion (25 percent) of CEOs who came from a country different from where their headquarters were located. Smaller companies still tended to choose leaders from close to home—only 18 percent came from another country. The largest global companies also favored more CEO recruits with international experience (perhaps because of the opportunities a larger company can offer its insiders). Indeed, 52 percent of the new CEOs at large companies had experience in other regions, compared with only 44 percent from smaller firms.

 
 
 
 
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