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Incoming CEOs Selected From Outside Organizations

By Rob Starr. Big4.com content Manager.

The recent CEO Success Study from PwC’s Strategy& highlights noteworthy themes in succession planning and has found several new subjects worth paying attention to. The report looks at the geographic distribution, degree and nature of succession planning in the world’s 2,500 largest public companies. Spencer Herbst, a researcher at Strategy& and a Senior Associate at PwC, walked Big4.com through the rise in incoming outsider CEOs, the high rate of CEO turnover globally and the low share of incoming women CEOs—the three largest takeaways from this version of the research.

The study itself is 16 years old and the focus on incoming CEO’s has been looked at for the last twelve. Herbst said they first noticed the trend to bring in executives from outside the organization’s internal structure well before this release.

“We actually noticed it a couple of years ago and finally decided the trend was so strong it was

something we had to address,” he said adding these latest results showed not only were  companies hiring these outsider CEOs, but they were actually performing better than their counterparts that had risen through company ranks. In fact, 22% of companies were choosing

Spencer Herbst

Spencer Herbst

this route from 2012 to 2015 in planned turnovers  and this represented a jump from the 14% from 2004-2007.

The scale of disruption across all industries is one of the primary reasons for the shift. Herbst says this is especially pronounced in what are considered the top tier players like Health Care, Financial and Telecom.

Existing CEOs

“These are the industries that are going through a lot of change right now whether it be shifts from past infrastructures to digitization and regulatory change,” he says adding these organizations weren’t sure the existing CEO’s had the capabilities and experience to lead them through the necessary changes.  He points to the onslaught of digitization as one of the bigger drivers forcing companies to look outside their ranks for CEOs who have been through these transitions before.

“We always say that companies need to be forward thinking when they pick a new CEO,” Herbst says.  “They need to make a choice based on what the company will need in the future and not based on the capabilities they had in the past that suited previous business models.”

There were other noteworthy high-water marks from the survey including a 16.6% CEO turnover rate that upon closer inspection was attributable to the one/two punch of uncharacteristically  strong M&A activity and a spike in forced turnovers.

“If you look at 2015, it was a record year globally for M&A and that showed up in our data.”

Lowest Share

Not so easily explained was the drop whereby only 10 women became incoming CEOs at the world’s 2500 largest companies in 2015. That number represents a mere 2.8%, and scores as the lowest share since 2011.

“In the U.S. and Canada, this is something we’re really scratching our heads about since this is the third year in a row the share has dropped and we don’t have a data explanation for it ,”  Herbst said adding PwC has already planned to take a better look at that issue for the next study.

 

 

 

 

 

 

 

 

 

 

 

 

 

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