More Boards Demanding Quicker CEO Results

May 18, 2010 ( – Booz & Company’s latest study of CEO succession found that corporate boards continue to hire insiders, are more often splitting the CEO/Chairman role, and are demanding the executive deliver results more quickly.

A Booz & Company news release said CEO turnover rates for 2009 dropped to 3.3%, the lowest since 2003 and off a decade high in 2008 of 5.1%. In 2009, overall succession rates, which include planned and merger-driven departures, fell 2.4% in North America and half a percentage point in Japan, but held stable in Europe and increased 2.3% in the rest of Asia, the report said.

According to the news announcement, the Booz study found three primary CEO succession patterns:

  • The percentages of CEOs replaced each year in Europe and Asia (excluding Japan) are now at levels closer to those in North America and Japan. Similarly, turnover rates have harmonized across industries, with 10-year averages settling between 12 and 14% for all except telecommunications (16.9%).
  • Boards have picked insiders over outsiders to lead their companies 80% of the time since 2000, not surprising in light of an average 2.5% in market-adjusted shareholder returns, compared with 1.8% for outsider CEOs over the past seven years.  
  • In 2000, roughly half of North American and European CEOs held the dual roles of CEO and Chairman. At decade’s end, that number fell to 16.5% and 7.1% for these regions, respectively.

Booz said the study also found several overall trends refocusing the CEO job itself:

  • In just the past decade, boards have shaved nearly two years off the average CEO’s tenure, from 8.1 years to 6.3 years. While they are leaving office at about the same age as they have historically, today’s departing CEOs were older when they entered office: 53.2 years for those who exited in 2009 versus 50.2 for those who exited in 2000.
  • Having split the roles of Chairman and CEO, North American and European companies are increasingly appointing the outgoing CEO as Chairman to apprentice the incoming leader. However, the “apprenticeship” model does not produce consistently superior returns. In fact, on average, apprenticed CEOs underperformed non-apprenticed CEOs by 1.3% per year.
  • CEOs forced from office significantly underperformed those leaving on their own terms. Never was this more dramatic in the past decade than 2009, when chiefs departing on a planned basis delivered median market-adjusted shareholder returns of 6% compared with -3.5% for terminated CEOs.

“New CEOs have fewer years to execute a game-changing strategy than their predecessors,” said Booz & Company Senior Partner Ken Favaro, in the news release. “They need to balance clarity and boldness with a realistic understanding of what is possible in their organizations.”

Financial Services sees CEO Turnover Volatility

The study also found that of the 357 succession events in 2009, 228 were planned (retirement, illness, long-expected changes), constituting the bulk of departures, particularly in Japan (84%) and North America (71%). There were 83 forced departures (where a board removes a CEO for poor financial performance, ethical lapses, or irreconcilable differences), and 46 were driven by mergers.

Financial services is now the most volatile industry for CEO turnover. In 2009, the rate of financial services CEOs leaving office was 17.2%— well above the 14.3% global average and significantly higher than the industry’s average turnover rate over the past decade. By contrast, CEOs in health care enjoyed the greatest stability in 2009, with an overall 10.3% turnover rate and only 0.6% of CEOs forced from office.

Telecommunications, however, stands apart from other industries in terms of its 10-year turnover rate (16.9% vs. 13.6% average), and its share of forced turnover (54%) — by far the highest of the 10 industries assessed, and the only industry in which forced turnover is greater than that of planned succession.

The Booz study is available at