Benefits May 22, 2007

CEO Seat Not as Safe as it Used to Be

May 22, 2007 (PLANSPONSOR.com) - The turnover for the chief executive officer post at large publicly-traded companies has ballooned by nearly 60% over the past 10 years, suggesting that corporate boards are now less reluctant to oust leaders who don't deliver results than they used to be, according to a recent survey of CEO turnover.
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The sixth annual survey by management consultant Booz Allen Hamilton also showed that boards are more likely to pull the next CEO from within company ranks rather look outside.Globally 357 CEOs (14.3%) at the 2,500 largest public companies left office in 2006, a 1.2% decrease from 2005.

While CEO turnover increased by 59% from 1995 to 2006, turnover linked directly to performance levels increased by 318% in the same period. Performance-linked departures actually decreased slightly in 2006, with 32% of departing CEOs being forced to resign because of poor performance or disagreements with the board.

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Merger-related departures increased over the past year to 22%, compared to 18% in 2005. Both regular and forced succession rates fell slightly from 7.9% to 6.6% and 4.8% to 4.6%, respectively.

Other key findings of the Booz Allen CEO turnover survey include:

  • Average CEO tenure increased to 7.8 years in 2006, with CEOs in North America averaging 9.8 years on the job. Asia-Pacific reached its longest-ever average tenure of 9.5 years; only Europe experienced a decline to 5.7 years.The proportion of departing outsider CEOs grew from 14% in 1995 to 30% in 2003, declining to 18% in 2006.
  • In 2006, a CEO who delivered above-average returns was almost twice as likely as one delivering sub-par returns to remain CEO for more than seven years; however, in 1995 underperforming CEOs stayed in office as long as high performers.
  • Investors saw the highest returns relative to a broad market average when the chairman was independent of the CEO, compared to when the CEO also held the title of chairman, or when the chairman was the prior CEO.
  • Outsider CEOs who had previously served as the CEO of a publicly traded company delivered slightly worse returns to investors in eight of the nine years studied, than CEOs who rose from within the company.

The Booz Allen survey looked at 357 CEOs of the world’s largest 2,500 publicly-traded companies defined by market capitalization.

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