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Published: May 25, 2010
 / Summer 2010 / Issue 59

 
 

CEO Succession 2000-2009: A Decade of Convergence and Compression

Doug Oberhelman (Caterpillar): Culture is an absolutely ingrained, intertwined part of strategy. You can have the greatest strategy in the world and not be able to execute it because of poor culture. On the other hand, you can have the worst strategy in the world that a good culture will overcome.

• Leverage emotional power. As an incoming CEO, you cannot influence the culture by acting solely from your base of positional power. If you seek to move the organization in a new direction, you must respect, understand, and leverage the emotional power vested in your role by the people of the company.

Severin Schwan (Roche): In my experience, people really want to make their mark. If you ask people what drives them, it is not the money or the career opportunity, although that’s part of it. It is that they really can make a difference. Recently, I was at a company meeting in Frankfurt at which a Spanish lady, a patient with a once-debilitating disease, stood up to thank Roche for what the company had done for her. At that very moment, everyone in the audience knew why they worked for Roche. I knew why I worked there as well.

Building on a Decade of Change

Every CEO takes the helm at a particular moment in time, and the job is defined accordingly. Today, external forces and internal company dynamics are coalescing in unique and powerful ways across regions and industries. These forces are increasing the challenges facing new CEOs, including the greater pressure to perform and the compressed time frame in which to operate. But they also offer new CEOs a distinct opportunity to make a difference, by creating more clarity and greater transparency about what companies — and chief executives — are here to do.

The game-changing practices discussed here — doing only what only a CEO can do, engaging with the board as a strategic partner, finding the right pace of change, and getting the culture to work with you — provide a path toward success. Ultimately it is the CEO’s job to marshal people’s energy and capabilities in pursuit of a shared strategic purpose. Along the way, the new CEO may be the one to finally bridge the gap between the center and the individual businesses, to reshape the culture around new performance gains and strategic imperatives, and — even more important — to make a fundamental difference in the lives of thousands of people.

Telecommunications: The Exception to the Industry Rule

As part of our analysis, we segmented succession events by industry for each of the past 10 years, and found that, apart from the type of noise one might expect from random market movements, all of the industries displayed patterns broadly similar to one another and to the overall sample. There was one exception: telecom companies.

Telecommunications is an outlier in terms of both its 10-year turnover rate (16.9 percent versus an industry average of 13.6 percent) and its share of forced turnover (54 percent), which is the highest by far of the 10 industries assessed, and significantly higher than the 36.7 percent industry average. (See Exhibit 9.) Indeed, telecommunications is the only industry in which the incidence of forced succession is greater than that of planned succession.

Likewise, telecommunications has not subscribed to the insider CEO norm; these companies have picked insiders only 53 percent of the time, versus an industry average (excluding telecom) of 81 percent. Interestingly, in the last two years, the telecom insider ratio has shot up closer to the industry average, suggesting convergence here as well.

Finally, telecommunications stands out for the compressed tenure of its CEOs over the past 10 years (5.2 years compared with a 7.5-year global average across all industries). It is not difficult to recognize the disruptive industry trends in the telecommunications industry as a root cause for this data. Shareholders of telecommunications service providers are obviously much less happy with the set of capabilities and the background experiences of their CEOs and senior leaders than are shareholders in other industries. One implication for telecom CEOs is the need to engage more proactively in skill building and talent hiring from other industries to strengthen their leadership bench. We believe that expertise is required, in particular from fast-moving consumer goods and Internet companies.

 
 
 
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Resources

  1. Corporate Leadership Council, “Creating Talent Champions, Volume I” (2008) and “Hallmarks of Leadership Success” (2003), Corporate Executive Board: The source of research on leadership development.
  2. Ken Favaro, Per-Ola Karlsson, Jon Katzenbach, and Gary Neilson, “Lessons from the Trenches for New CEOs: Separating Myths from Game Changers” (PDF) (Booz & Company, 2010): The practices that will substantially contribute to success for new CEOs.
  3. Per-Ola Karlsson and Gary Neilson, “CEO Succession 2008: Stability in the Storm,” s+b, Summer 2009: Last year’s study documented how the financial crisis had held down the rate of CEO turnover, except in hard-hit industries like financial services and energy.
  4. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/strategy_and_leadership.  
 
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