According to the 2018 CEO Success study by PwC’s strategy consulting business, there was a rise in the share of CEOs who were forced out of their positions for ethical lapses.
In fact, more CEOs (39 percent) were forced out for ethical lapses rather than financial performance or board struggles, a first in the study’s history. This number rose 13 percentage points as compared to 26 percent in 2017.
The study, which analysed CEO successions at the world’s largest 2,500 public companies over the past 19 years reports that successors to long serving CEOs are not faring as well as they are likely to have shorter tenures, worse performance and more often forced out of office than the CEOs they replaced.
PwC’s Mary Iwelumo, Partner and Strategy leader, PwC Nigeria said, “the survey results reveal that in most cases, while CEO successor appointment, does not follow the “one cap fits all” philosophy; CEO successor success appears to follow a similar trend – it takes more than an appointment to achieve similar success levels than an outgoing long-term CEO.”
According to the report, nearly half of successor CEOs moved down a performance quartile or more as compared to their predecessors. 69 percent of successors who replaced a long serving CEO in the top performance quartile ended up in the bottom two performance quartiles.”
Analysis of the report revealed that CEO turnover hit a record high of 17 percent in turbulent 2018. This is 3 percentage points higher than the 14.5 percent rate in 2017 and above what has been the norm for the last decade.
While the median tenure of a CEO has been five years, 19 percent of all CEOs remained in position for 10 or more years, consistently, over the time period analysed.
Despite disruption, intense competition and eager investors, the median tenure within the group is 14 years with these long serving CEOs who also have better performance, and are less likely to be forced out than not long serving CEOs.
By region comparison, North American CEOs hold a significant margin in the probability of becoming a long term CEO at 30 percent, followed by Western Europe at 19 percent, Japan and the BRI countries (Brazil, Russia and India) at nine percent and China at seven percent.
CEO turnover rose notably in every region in 2018 except China, and included a large increase in Western Europe. Turnover was highest in “other mature” economies (such as
Australia, Chile, and Poland at 21.9 percent respectively, nearly as high in Brazil, Russia, and India at 21.6 percent respectively. The next-highest turnover numbers were in Western Europe (19.8 percent), and the lowest were in North America (14.7 percent).
Among industries, turnover was highest in communication services companies (24.5 percent), followed by materials (22.3 percent) and energy (19.7 percent). Healthcare saw the lowest rate of CEO turnover in 2018, at 11.6 percent.
A further analysis of the report revealed that the share of incoming women CEOs was 4.9 percent down slightly from the record high of 6.0 percent in 2017. However, the trend has been upward since the low point of 1.0 percent in 2008.
Unlike in 2017 when the record high was driven by a 9.3 percent spike in incoming CEOs in the US and Canada, the largest percentages in 2018 originated in Brazil, Russia, India and China and other emerging countries.
The utilities industry had the largest share of women CEOs at 9.5 percent followed by Communication Services and Financial Services at 7.5 and 7.4 percent respectively.
Endurance Okafor
