CEOs today are unlikely to remain in office for quite as long as their predecessors. Luc Vandesvelde was CEO of Marks & Spencer for just three years. Louis Camilleri held the top spot at Philip Morris for only two years, while Greg Dyke was Chair at the BBC for just two years too.
In fact over the past five years, around two-thirds of all major companies worldwide replaced their bosses and that CEO tenure has decreased sharply.
Job security for CEOs globally is diminishing. In virtually every industry CEO turnover is rising and leadership changes are occurring more frequently. If these trends continue, they will have a significant impact on executive careers and how organisations are managed.
As CEO tenure is reduced, a growing number of leaders will be required to implement their plans and strategies within more limited time frames, reinforcing the current corporate focus on short-term business results.
Despite these changes, many companies still tend to look for CEO successors with extensive company experience within their own ranks. So whilst many companies feel the need to change leaders more often, they still place a high value on executive continuity and stability.
Because of the complex nature of corporations today, it is also not surprising that corporate boards prefer candidates to have come from inside the business because they tend to have market, product, technical, organisational and cultural knowledge that’s required.
As a result of corporate scandals, such as Enron and WorldCom, there is a growing trend amongst companies to seek objective expert opinion about the capability, psychological profile and fit of their potential CEO.
It’s not just about satisfying accountability to boards, shareholders and public sector ministers, but also regulatory requirements imposed by industry bodies, as well as legislation like Sarbanes-Oxley.
This has spelt an end to “on the nod” appointments. Accountability for the most senior selection decisions now have to be justified on the grounds of externally benchmarked assessed capability and psychological profile, above and beyond track record, and interviews alone. Given the combination of the need for rapid change, together with the need for continuity, many companies are attempting to manage CEO churn and transition by well-established and sophisticated succession planning instruments, of which an “external, objective and scientific” opinion is a part.
The objective is to optimise the flow of management talent within the organisation to reward high-performing executives, and ensure smooth leadership changes with minimal disruption.
In addition, as CEO tenure diminishes, the need for incumbents to make a real difference fast becomes apparent. This has an impact on how leaders manage and what they can realistically contribute. Many want to improve their leadership skills so that they can implement their business plans more quickly.
As a result, ER Consultants have seen a marked increase in the demand for our skills in executive coaching and development to facilitate the rapid growth and effectiveness of new corporate leaders.
We have also noticed an increase in requests for our psychological assessment tools and innovative assessment centre type exercises to help organisations select, appoint and develop capability at CEO and board level.
This requires us to have both an understanding of specific organisational context – such as, what constitutes CEO excellence within that context – together with the inventiveness to conduct relevant and objective assessment of capability and psychological style.
However, in the early 90s very few plc boards or public sector organisations insisted upon this level or type of external expertise to make top level selection decisions. So what does this mean for today’s CEOs and the organisations they lead?
We anticipate that corporate leaders can expect to spend less time in office than their predecessors and to expect more career transitions. CEOs should therefore plan and prepare for such transitions, and this should be an integral component of their career planning.
However, it also reaffirms the need for effective succession planning and executive education and development. Indeed, a systematic attempt to identify, develop and retain high-potential leaders plays a critical role in ensuring smooth leadership transitions and continued organisational success.