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 / Summer 2003 / Issue 31(originally published by Booz & Company)


CEO Succession 2002: Deliver or Depart

Although such careers make for great drama, they are not necessarily good for the rest of us — the shareholders, employees, suppliers, customers, and neighbors of large companies, who desire fulfilling lives, safe communities, and secure retirements.

We believe the time has come for moderation, a renewed sense of purpose, and a new model for the way chief executives and boards collaborate on their stakeholders’ behalf. All CEOs are human; even the best have weaknesses. Removing a poorly performing chief executive is far less valuable to stakeholders than finding the right CEO, helping the chief recognize his or her limitations, then contributing to the individual’s (and the company’s) success.

In that light, we offer five observations to CEOs, boards, and the others on whom the future of shareholder capitalism rests:

Individual leadership still matters. In their rush to demonize CEOs, some critics have concluded that the only forces that determine corporate performance are institutional and macroeconomic. Clearly, we need to put some aspects of the “cult of the CEO” behind us, but in dispersed organizations, extended enterprises, and service-oriented companies, the background, skills, leadership style, and personality of a CEO are central to the firm’s ability to achieve alignment. Global companies, especially, simply will not be able to go back to the days of anonymous, collective decision making.

Execution and vision cannot be divided. Conservative management models are in vogue — and long may they reign: Few skill sets are as important to a CEO as what Larry Bossidy and Ram Charan term “the discipline of getting things done.” But it’s equally important to know what to do. Creative, strategic thinking is as valuable today as ever. So is communicating it effectively, inside the company and out.

Hit the ground running — and then keep running. The grace period for a new CEO is becoming shorter and shorter. New CEOs have to set their agenda fast and implement it in five to seven years. When that strategic agenda draws to a close, it’s time to set the next one. The second-half slump must be avoided.

The board shouldn’t just be judge and jury; it must be coach and counselor. Boards, particularly in the U.S., are being asked to shoulder greater oversight of corporate performance. Rather than get mired in fault finding, directors should strive to help chief executives overcome the hurdles most will eventually face: sustaining above-average returns in the second half of the CEO’s tenure; helping the CEO, particularly if he or she is an outsider, understand the company’s heritage and culture; and guiding the new CEO toward changes that last. For all these reasons, companies should seriously consider separating the roles of chairman and CEO, or at least appointing a lead director. A good chairman and a good board are the CEO’s best allies.

Let’s help the board become more effective, too. The governance debate should be broadened to include discussions of the effectiveness of the board in performing all of its roles. A balanced scorecard of board metrics should be created to assess not only the board’s independence and the transparency of financial accounting, but also the board’s effectiveness as a counselor and the results achieved for shareholders in both the short and the long term.

Reprint No. 03204

Also contributing to this article was Julien Beresford ([email protected]), president of The Beresford Group, a research company based in Westport, Conn.


This study required the identification of the world’s 2,500 largest public companies, defined by their market capitalization on January 1, 2002. We used market capitalization rather than revenues because of the different ways financial companies recognize and account for revenues. The Compustat/Global Vantage database of public companies provided a ranking of all publicly traded companies on December 31, 2002.

To identify the companies among the top 2,500 that had experienced a chief executive succession event, we used a file of executive changes provided by idEXEC (a global business-to-business contact database of executive decision makers). We also used a variety of printed and electronic sources, including Corporate Yellow Book and Financial Yellow Book (both published by Leadership Directories, N.Y.); 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 for any announcements of retirements or new appointments of chief executives, presidents, managing directors, and chairmen; results of this search were compared to the list of top 2,500 companies. For firms that had been acquired or merged in any of the subject years, we used the Thomson Financial Mergers & Acquisitions database. Finally, we consulted the marketing personnel of Booz Allen Hamilton offices outside the U.S. 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 to confirm that a change had occurred in 2002 and for identification of the outgoing executive: title(s) upon succession, starting and ending dates of tenure as chief executive, age, education, whether an insider or outsider immediately prior to the start of tenure, whether he or she had served as a CEO elsewhere prior to this tenure, and the true reason for the succession event. Company-provided information was acceptable for each of these data elements except for the reason for the succession; an outside press report was necessary to learn the true reason for an executive’s departure (because company press releases often obscure it). We used a variety of online sources to collect this information on each CEO tenure, including company Web sites, the Factiva database, and proxy statements available on the U.S. Securities and Exchange Commission’s (SEC’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 Hamilton 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 for total tenure, first half, and second half) for two types of financial and shareholder information for each executive’s tenure: net income and total shareholder return (TSR, including the reinvestment of dividends, if any). Net income data was provided by S&P (Custom Projects); quarterly data was provided for North American–traded securities, and annual data was provided for other firms. To enable meaningful cross-industry comparisons, we also collected the income data information for the relevant industry and region (e.g., automobiles in North America, Europe, Asia/Pacific, South America, or Africa) and subtracted the regional industry income growth from the company’s average growth in the same period. TSR data was provided by Thomson Financial Datastream. Regionally adjusted TSR AGRs were calculated by subtracting the Morgan Stanley regional shareholder return indices from the company’s performance during the periods in question.

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  1. Chuck Lucier, Eric Spiegel, and Rob Schuyt, “Why CEOs Fall: The Causes and Consequences of Turnover at the Top,” s+b, Third Quarter 2002; Click here.
  2. Margarethe Wiersema, “Holes at the Top: Why CEO Firings Backfire,” Harvard Business Review, December 2002; Click here.
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