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Published: May 24, 2012
 / Summer 2012 / Issue 67

 
 

CEO Succession 2011: The New CEO’s First Year

Naming a new CEO from among executives who have been with their company for years is by far the most common type of succession — for good reason. They already know the ropes: They’ve worked for a few years with the executive team, they understand the company’s complex corporate culture, they’ve had some contact with the board, and they’ve proven themselves to be capable within the company they will lead. So they can expect to feel more comfortable in their new role, and to perform better than their counterparts from the outside. On the other hand, much will be new: Executives who used to be their equals are now their direct reports, they are now the face of the company as never before, they now report to a board rather than to just a single individual, and they know that the CEO’s relationship with the board has changed dramatically over the last 10 years. The new CEO must manage these different dynamics carefully.

Still, new insider CEOs can expect to remain in their new position longer than new CEOs from the outside. The length of their tenure, however, will likely depend on the industry — as we noted above, CEOs at energy, telecom, and utilities companies tend to turn over at significantly higher rates than do those in other industries. At the same time, insiders are more likely to be appointed to the role of chairman after their time as CEO than outsiders are.

For the most part, these trends hold true for new CEOs at companies below the top 250 in market cap, though there are some distinctions to be made. Although outright dismissals are few and far between at companies of all sizes, they are even less likely at these smaller companies. Still, outsiders are more likely to be let go than insiders. More CEOs at these smaller companies, compared with those at top 250 companies, are appointed as a result of some kind of M&A transaction, and their tenure may be shortened by M&A actions in the future. Overall, however, these CEOs can take some comfort in the fact that their tenure will likely be longer than the tenure of their counterparts at the biggest companies.

Advice for the Incoming Class

The details may vary, but the overall trends we have been following for the past several years are continuing. First, every CEO is facing a short and intense tenure, with significantly greater pressure to perform and less room for mistakes. That may be why increasing numbers of new CEOs have attained their position as a result of a carefully executed succession plan and, more often, have a chairman who was once CEO available to consult.

New CEOs will, of course, find themselves under particular pressure to perform. The first year of running a company will bring with it a common set of challenges, including when to enact major changes in strategy and personnel and how to manage one’s personal life. The first year also represents a window of opportunity: It is a time when all the company’s constituencies may be more expectant of — and open to — changes in emphasis and direction, and a time when the CEO can make an impression. In putting together this year’s CEO Succession study, we spoke to 18 CEOs, in a wide range of industries and geographies, who were happy to pass along their thoughts about the difficulties they faced, the successes they achieved, and what, in retrospect, they felt they might have done differently in their own first year. Below, we offer seven specific suggestions for how to weather the storms the first year is likely to bring. (For a fuller account of the CEOs’ advice, see “Navigating the First Year: Advice from 18 Chief Executives.”)

 
 
 
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Resources

  1. Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, “The Four Types of CEOs,” s+b, Summer 2011: Last year’s study suggested that the nature of the CEO’s job varies with the role of the corporate core — and that the more involved headquarters is in operational decision making in any given company, the more fragile the CEO’s tenure is likely to be.
  2. Ken Favaro, Per-Ola Karlsson, Jon Katzenbach, and Gary L. Neilson, “Lessons from the Trenches for New CEOs: Separating Myths from Game Changers,” Booz & Company white paper, January 2010: The practices that will substantially contribute to success for new CEOs.
  3. Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, “CEO Succession 2000–2009: A Decade of Convergence and Compression,” s+b, Summer 2010: This study documented a decade’s worth of CEO succession trends and noted how governance norms are converging and the job of the CEO is compressing, in terms of both tenure and capacity.
  4. Gary L. Neilson and Julie Wulf, “How Many Direct Reports?Harvard Business Review, April 2012: An author of this article and a Harvard Business School professor discuss why the CEO’s average span of control, measured by the number of direct reports, has doubled, rising from about five in the mid-1980s to almost 10 in the mid-2000s.
  5. For more thought leadership on this topic, see the s+b website at: strategy-business.com/strategy_and_leadership and the Booz & Company website at: booz.com/global/home/what_we_think/featured_content/ceo_succession.
 
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