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 / Summer 2008 / Issue 51(originally published by Booz & Company)


CEO Succession 2007: The Performance Paradox


This study identified the world’s 2,500 largest public companies, defined by their market capitalization (from Thomson Financial Datastream) on January 1, 2007. To identify the companies among the top 2,500 that had experienced a chief executive succession event, we cross-checked data across a wide variety of printed and electronic sources, including Factiva and Hoover’s. Additionally, we conducted electronic searches for announcements of retirements or new appointments of chief executives, presidents, managing directors, and chairmen. For a listing of companies that had been acquired or merged in 2007, we used Bloomberg. Finally, staff within Booz & Company offices worldwide included CEO changes from their regions that had not previously been identified. 

Each company that appeared to have a CEO change was investigated for confirmation that a change occurred in 2007 and for identification of the outgoing executive: name, title(s) upon accession and succession, starting and ending dates of tenure as chief executive, the announcement date of both appointment and exit, age, whether he or she was an insider or outsider immediately prior to the start of tenure (and, if an outsider, whether he or she was an industry outsider), whether he or she had served as a CEO of a public company elsewhere prior to this tenure, whether the CEO had been chairman (and, if so, for how long), 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 succession event. Company-provided information was acceptable for each of these data elements except the reason for the succession; an outside press report was used to confirm the reason for an executive’s departure. We also enlisted the support of Booz & Company offices worldwide as part of the effort to learn the reason for spe­cific CEO changes in their regions. 

Regionally adjusted average growth rates (AGRs) of total shareholder returns (TSRs), including the reinvestment of dividends, if any, for each executive’s tenure, were calculated. We performed this calculation for the entire tenure, the first and second halves of the tenure, the first two years, and the final year. TSR data for each company and corresponding region was provided by Thomson Financial. Company and regional TSRs for the three years prior to each CEO’s start date and calculated AGRs were collected as a measure of the company’s health prior to each chief executive’s tenure.

This year is the 10th data year in our studies of CEO succession. We have 25,000 data points and data on nearly 3,000 CEO successions and more than 500 successions resulting from poor financial or managerial performance. This year, we greatly expanded our shareholder return data to better understand the corporate perfor­mance that can shorten a CEO’s tenure. For every company and every year, we gathered shareholder return data for the preceding four years. With this data, we can see how the level and duration of poor corporate performance changes the probability that the CEO will be dismissed. We report some of our findings in this article and look forward to presenting additional findings in subsequent articles.

Reprint No. 08208

Author Profiles:

Per-Ola Karlsson is a vice president with Booz & Company based in Stockholm. He leads the firm’s organizational change team in Europe, specializing in strategy-based corporate transformation and postmerger integration ser­vices. He has extensive experience in a variety of industries, including automotive and assembly, energy, telecommunications, and transportation, as well as private equity.

Gary L. Neilson is a senior vice president with Booz & Company in Chicago. He helps companies diagnose and solve problems associated with strategy implementation, organizational effectiveness, and efficiency.

Juan Carlos Webster is a principal with Booz & Company in New York. He specializes in advising boards and senior executives on shareholder value and corporate finance. He has worked across multiple industries on topics including value-based performance management, equity incentive compensation, acquisition support, and operational restructuring strategies.

Also contributing to this article were Booz & Company Senior Vice President Steven Wheeler and Principal Adrienne Crowther.
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  1. Joseph L. Bower, The CEO Within: Why Inside-Outsiders Are the Key to Succession Planning (Harvard Business School Press, 2007): The Harvard Business School professor on how companies can groom “inside outsiders” to lead.
  2. Ram Charan, “Boardroom Supports,” s+b, Winter 2003: Describes how directors play a crucial role in selecting, training, and nurturing a new CEO.
  3. 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.
  4. Chuck Lucier, Paul Kocourek, and Rolf Habbel, “CEO Succession 2005: The Crest of the Wave,” s+b, Summer 2006: The 2005 study heralded the end of the era of the imperial CEO.
  5. Chuck Lucier, Steven Wheeler, and Rolf Habbel, “CEO Succession 2006: The Era of the Inclusive Leader,” s+b, Summer 2007: As turnover leveled off, last year’s study revealed chief executives and their boards were adopting new survival strategies.
  6. Ira M. Millstein and Paul W. MacAvoy, The Recurrent Crisis in Corporate Governance (Palgrave Macmillan, 2004): Makes the case for an active board of directors led by an independent chair to take responsibility for corporate management.
  7. Michael Schrage, “Ira M. Millstein: The Thought Leader Interview,” s+b, Spring 2005: A warning from a corporate governance doyen to reform board structures or accept more value destruction.
  8. For more business thought leadership, sign up for s+b’s RSS feeds.
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