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 / Summer 2006 / Issue 43(originally published by Booz & Company)


CEO Succession 2005: The Crest of the Wave

The Japanese Exception

Although the age of the “imperial CEO” has ended across most of the globe, Japan is another story. At nearly 20 percent, the overall rate of CEO succession in Japan is at an all-time high, and at first glance seems to be in line with succession rates in the United States and Europe. But Japan is unusual in its exceedingly low rate of forced successions. This year, for example, only 10 percent of all CEO successions were forced in Japan, compared with 35 percent in the U.S. and 42 percent in Europe.

As Hiroyuki Sawada, Booz Allen Hamilton’s lead representative in Japan, suggests, “While there is a trend in Japan toward more corporate transparency, including appointing outside board members, there remains a long and significant history of weak governance and CEO supremacy.”

The lack of forced succession reflects Japanese corporate culture, which has favored continuous leadership as a strategy, particularly as it emerged from the national recession of the 1990s. Most Japanese corporations follow the “apprentice model” of CEO succession, in which the current CEO is promoted to chairman after naming his successor. In 2005, 69 percent of departing Japanese CEOs were apprentices, down from 97 percent in 1995. Although the decline indicates some trend toward stronger corporate governance in Japan, 69 percent is still a very high number, especially when compared with the U.S. and Europe, where 36 percent and 22 percent, respectively, were apprentices in 2005.

In Japanese practice, the apprentice model usually means that the newly promoted chairman calls the shots and the CEO implements the chairman’s strategy, effectively making the newly named CEO a deputy. For most CEOs in Japan, the goal is therefore to become chairman, and that requires patience. Unlike CEOs in the rest of the world, Japanese CEOs have full authority to name their successors, which is typically a private, personal, and politically motivated decision. Thus, if the CEO successfully carries out the chairman’s objectives and performs well, he is almost always rewarded with the chairmanship and the eventual ability to name his own successor. The board will step in only in situations where the CEO is significantly underperforming.

With Japan’s regular departing CEOs producing the overall lowest regional total shareholder returns — 1.7 percent versus a global average of 6.5 percent — more boards may step in and name CEO successors, though at a pace that is amenable to Japan’s more patient culture.

— C.L., P.K.


This study required the identification of the world’s 2,500 largest public companies, defined by their market capitalization on January 1, 2005. We use market capitalization rather than revenues because of the different ways financial companies recognize and account for revenues. Thomson Financial Datastream provided the market capitalization of the top companies in each global region on December 31, 2004. For analytical purposes, we divide the global market into six regions: North America (the U.S. and Canada), Europe, Japan, Rest of Asia/Pacific (including Australia and New Zealand), Latin America (including Mexico), and Middle East/Africa.

To identify the companies among the top 2,500 that had experienced a chief executive succession event, we used a variety of printed and electronic sources, including Corporate Yellow Book and Financial Yellow Book (both published by Leadership Directories); Fortune; the Financial Times; the Wall Street Journal; and several Web sites containing information on CEO changes (,,, and Additionally, we conducted electronic searches using Factiva, Nexis, and general search engines for any announcements of retirements or new appointments of chief executives, presidents, managing directors, and chairmen; results of these searches were compared with the list of top 2,500 companies. For a listing of companies that had been acquired or merged in 2005, we used Bloomberg. Finally, we utilized marketing personnel of Booz Allen Hamilton offices outside the United States to add any CEO changes in their regions that had not been identified.

Each company that appeared to have experienced a CEO change was then investigated for confirmation that a change had occurred in 2005 and for identification of the outgoing executive: name; title(s) upon ascension and succession; starting and ending dates of tenure as chief executive; age; education; whether he or she was an insider or outsider immediately prior to the start of tenure; whether he or she had served as a CEO of a public company elsewhere prior to this tenure; and whether the CEO had been chairman and, if so, for how long. We also ascertained the identity of the chairman at the start of the CEO’s tenure (if different) and whether that individual had been the CEO of the company, and the true reason for the CEO succession event. Company-provided information was acceptable for each of these data elements except the reason for the succession; an outside press report was necessary to confirm the true reason for an executive’s departure. We used a variety of online sources to collect this information on each CEO’s tenure, including company Web sites, the Factiva database,, and proxy statements available on the U.S. Securities and Exchange Commission’s EDGAR database (for U.S.-traded securities). In some cases, when the online sources were unproductive, we contacted the individual companies by e-mail and telephone to confirm the tenure information. We also enlisted the assistance of Booz Allen offices worldwide as part of this effort to learn the reasons for specific CEO changes in their regions.

We then calculated average growth rates (AGRs) of total shareholder returns (TSRs), including the reinvestment of dividends, if any, for each executive’s tenure. We did this for total tenure, first and second halves of the tenure, first two years, and final year. To assess the company’s health prior to each CEO’s tenure, we collected TSRs for the five years prior to each CEO’s start date and calculated AGRs. TSR data was provided by Thomson Financial Datastream. We calculated regionally adjusted TSR AGRs by subtracting the Morgan Stanley regional shareholder return indices (and Datastream regional industry shareholder return indices) from the company’s performance during the time periods in question.

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  1. Rakesh Khurana and Katharina Pick, “The Social Nature of Boards,” Brooklyn Law Review, vol. 70, no. 4, Summer 2005: Unearths the relationship between board makeup and succession decisions.
  2. Chuck Lucier, Rob Schuyt, and Edward Tse, “CEO Succession 2004: The World’s Most Prominent Temp Workers,” s+b, Summer 2005: Last year’s study foreshadowed the “era of the short-term chief.” Click here.
  3. For more business thought leadership, sign up for s+b’s RSS feeds. Click here.
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