UK CEOs unlikely to last beyond five years, Strategy& finds

30 May 2017 Consultancy.uk

A new report from Strategy& has found that UK CEOs now have an average five year life-cycle, before jittery share-holders seek new blood – partly due to increased public scrutiny of corporate behaviour. Consistent with trends in five of the last year years, according to the 2017 CEO Success Study, the median length of service at the top for the biggest 300 British businesses has shrunk to 4.8 years, down 73% from 2010’s high of 8.3 years.

Since 2000, Strategy&, the strategy consulting unit of PwC and a top 50 think tank globally, has conducted research into CEO succession. As part of the annual study, the researchers analyse CEO turnover activity at the 2,500 largest public companies around the world, while monitoring key characteristics of individuals such as tenure, chairmanship, nationality, professional experience, gender and prior role/industry.

Amongst last year’s findings, Strategy& reported CEO turnovers had reached record levels. From 2014-15, 17% of the globe’s largest public companies saw their Chief Executive Officers leave the firm’s ranks, a 15 year high. However, while the global figures for executive turnover have subsided slightly since to 14.9% in 2016, due largely to decreasing merger and acquisition activity, the trend toward cut-throat CEO expendability has continued in the UK.

PwC’s strategic wing found that in the year since the last report, the expected term in office for a UK CEO had further shrunk beneath a five year average – having stood at 5.1 years last term – with most now spending just 4.8 years in the position.

Median tenure of outgoing CEOs by region

CEO accountability

According to the researchers, part of the reason behind this decline in CEO security is an increase in corporate accountability. More now than ever before, boards of directors, institutional investors, governments and the media are holding chief executive officers to a far higher standard of scrutiny for ethical lapses. Globally, CEO dismissals for ethical lapses increased from 3.9% of all successions in 2007-2011 to 5.3% in 2012-2016 – a 36% increase.

The researchers have identified five trends which have shaped this revolution in CEO accountability. Firstly, public opinion, which after the financial crisis of 2007-08 and the subsequent recession, became significantly less trustful of large corporations and CEOs – with the citizens becoming more suspicious, more critical, and less forgiving of irresponsible corporate behaviour. This public criticism also led to a rise in governance and regulation of companies – causing many to implement zero-tolerance policies for such behaviour, in order to avoid hefty state sanctions.

The Bigger They Are

Digital communications have also been a cause that directly feeds into these two other factors. The use of email, text messaging, and social media has created new risks, as a company’s digital communications can now provide irrefutable evidence of misconduct, and this increases the likelihood that a CEO will be held accountable. On top of this, Strategy& cite the 24/7 news cycle as the fourth factor contributing to increased accountability – as unlike the previous century, when most executives and companies could maintain a low public profile, today the lightning-fast flow of online financial news and data means information, and especially negativity, travels quickly and widely.

Meanwhile the business operating environment has also changes, with Companies increasingly pursuing growth in emerging markets where risks are heightened, or relying on extended global supply chains that increase third party risks. The result is a wider realm in which mistakes are made, and which ultimately cost CEOs their jobs.

Marco Amitrano, UK head of consulting at PwC, said of the results, “Today’s CEOs are operating in a period of rapid social, political and technological change. Navigating this unforgiving environment whilst trying to adapt and transform a business will always be a difficult task. With CEOs increasingly held accountable for their actions and given a short time in which to prove themselves, it is more essential than ever that they define a clear strategy to best position their company for future growth.”

Women bounce back

While the increase in accountability has led to the balancing act performed by most CEOs significantly more difficult however, it does also seem to have had a knock-on effect on diversity in the board-room. Last year, in the cases where new CEOs were appointed, only 2.8% of those positions was filled in by a female successor, the lowest level since 2011. While the figures this year are still a long way from their 2014 prime of 5.2% however, the slight increase in new female CEOs being appointed seems to reflect growing appetite for equity in corporate culture.

Share of incoming femaile UK CEOs 2009 - 2016

Globally, companies appointed 12 women CEOs in 2016 – 3.6% of the incoming class. This marked a return of the slow trend towards greater diversity that had been in place over the last several years – and a recovery from 2015’s recent low point – however, this will do little to offset increasing public criticism of the perceived glass-ceiling in corporate culture.

Earlier this year, a new report by Big Four consulting firm EY exploring gender balance in the public sector found that in most OECD countries there is parity or near parity in leadership roles. Of the 54% of organisations at which there is no parity, 34% say that their organisation will have achieved parity within ten years. Gender disparity in leadership roles in the private sector has meanwhile come under increasing scrutiny in recent years as it became clear that the level of disparity had remained largely stagnant.

Related: 5 tactics to cultivate a pipeline of qualified female executives (article by DeAnne Aguirre, Senior Vice President at Strategy&).

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