CEO turnover at a record high, outsider executives gaining terrain

25 April 2016 Consultancy.uk

CEO turnover has reached a record high, according to a new study. Last year 17% of the globe’s largest public companies saw their Chief Executive leave their firm’s ranks, more than in any of the previous 15 years. When it comes to filling in positions, outsiders are gaining terrain, yet, diversity remains an issue, with women taking a mere 3% share of newly appointed CEO roles.

Since 2000, Strategy&, formerly Booz & Company and nowadays the strategy consulting unit of PwC, conducts research into CEO succession. As part of the study, the researchers analysed CEO turnover activity at the 2,500 largest public companies around the world, as well as kept track of key characteristics of individuals such as tenure, chairmanship, nationality, professional experience, gender and prior role/industry.

The data reveals that, for the past 15 years, the rate of change in Chief Executive Officer positions has consistently hovered between 9.8% (2003) to 15.4% (2005). Last year, though, saw a breakthrough in the trend, as CEO turnover reached its highest points since the study’s inception back in 2000. 16.6% of CEOs made way – in 10.9% of these cases success was planned for, while in 3% of the (known) cases CEOs were for one reason or another forced to leave the organisation. CEO turnover on the back of M&A restructuring, which in most cases resembles an inevitable forced departure, had a renewal rate of 2.8%.

Diversity?
In the case new CEOs were appointed in 2015, only 2.8% of those positions was filled in by a female successor, the lowest level since 2011. Just 10 of 359 incoming CEOs in the class of 2015 were women.

The news was even worse in the U.S. and Canada where the share of incoming women CEOs fell for the third year to the lowest in the past twelve years. There was just one woman among the total 87 incoming CEOs in the region (1%), compared to 4% in 2014 and over 7% in 2012. At the same time, however, across the investigated time span the U.S. and Canada still lead the pack, with an average score of 4.0%, higher than the global average of 3.0% and markedly higher than the 0.9% in Japan.

An industry perspective shows that the popularity of female CEOs differs widely across sectors. In the Consumer Goods and Telecom industries the share of women CEOs sits between 4.5% and 4.9%, while in sectors such as Energy, Industrials and Materials the top seat in boardrooms is in about 98% of the cases given to a male CEO. Interestingly, Healthcare, an industry with one of the largest shares of female participation, also finds itself in the lowest ranks.

Outsider vs insider
The Strategy& study further finds that the majority of companies have continued to promote insiders to the CEO position: 77% insiders versus 23% outsiders in 2015. Outsider CEOs have, however, caught up and closed a performance gap that the study previously found between outsider and insider CEOs, which according to the authors, is the result of three main factors.

Firstly, over the past several years more big companies have been deliberately choosing their new CEO from outside of the company. In the latest four-year period (2012–15) boards chose outsiders in 22% of planned turnovers, up from 14% in 2004–2007, which represents a 50% increase in the rate of outsider selection. “An indication that hiring an outsider has become more of an intentional leadership choice than a necessity”, comments Per-Ola Karlsson, a partner at Strategy& in the Middle East.

Secondly, the range of disruptive forces hitting the frontiers of organisations is sparking a growing preference for executives from outside a firm’s own industry. Some of the industries that have been experiencing the most disruption are also the ones that have brought in higher-than-average shares of outsiders over the last several years. This includes telecommunications (38% of incoming CEOs from 2012-2015 were outsiders), utilities (32%), healthcare (29%), and energy (28%).

Karlsson: “While an internal CEO candidate may have an excellent record of achieving the business goals the company has pursued in the past, boards are recognising that this candidate may lack the skills needed to lead the company through the changes necessary to win in the future.” Gary Neilson, a US-based partner at Strategy&, adds: “Outsiders don’t have biases and commitments built up over the years, and can make changes more objectively. They also may be able to look at the organisation from a broader perspective based on an understanding of what the world will require in the future.”

Lastly, Europe’s role in the outsider CEO scene is large, lifting the global average. 38% of new CEOs in Europe came from outside the company, compared to, for instance, just 3% in Japan and 9% in China. Western European companies are also more inclined to hire a foreign CEO – defined as an executive with a different nationality than the organisation’s headquarter location.

Interestingly, female CEOs are relatively speaking more often hired from outside the company than male CEOs are. 32% of all incoming and outgoing female CEOs from 2004-2015 were outsiders compared to just 23% of males CEOs. “That women CEOs are more often hired from the outside may be an indication that companies have not been cultivating enough female senior executives in-house,” comments DeAnne Aguirre, a partner at Strategy&. “One of the reasons why women may be more likely to be outsiders is that their development is not being recognised within their own organisation, and therefore they may be more likely to be attracted away.”

Looking ahead, the authors state that they believe insiders CEOs will continue to remain the preferred succession-planning practice. They conclude: “Whether the new leader comes from inside or outside the organisation, companies that plan for CEO succession more carefully are more likely to be better performing companies in general.”

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Project management industry adds £156 billion of value to UK economy

15 April 2019 Consultancy.uk

Project management has grown into one of UK’s largest areas of business over the past decade, amid the increasing ‘projectification’ of work. With the gross value added to the UK economy by project management estimated to be £156 billion, this trend is likely to continue in the coming era.

Despite the huge success of project management in recent years, until now there has been relatively little data available on the size of project activity. As a result, there has been a great deal of debate on things like the number of people involved in the sector, the number of projects, and how it contributes to economic output. Due to this need for clarity, APM, the UK’s professional body for project management (the largest organisation of its kind in Europe, with 28,000 individual members) commissioned economists from PwC to shed light on the industry's economic impact.

The research concluded that the profession makes a more significant contribution to the UK economy than the financial services sector. 2.13 million full-time equivalent workers (FTEs) were employed in the UK project management sector, generating £156.5 billion of annual gross value added (GVA). In comparison, the financial services sector contributes £115 billion, and the construction industry adds £113 billion.

Gross value added to UK economy

Commenting on the discovery, Debbie Dore, Chief Executive of APM said, “Project management runs as a ‘golden thread’ through businesses, helping to develop new services, driving strategic change and sector-wide reform.”

Who is a ‘project manager’?

To reach these estimates, PwC’s researchers used detailed models to map out the value of project management activity. They ultimately defined relevant ‘projects’ as “temporary, non-routine endeavours or rolling programmes of change designed to produce a distinct product, service or end result… [with] a defined beginning and end, a specific scope, a ring-fenced budget, [and] an identified and potentially dedicated team with a project manager in charge.”

Building on this, they then went on to define what the act of project management actually is. The job consists of applying “processes, methods, knowledge, skills and experience” so that clients can meet their objectives and bring about planned outputs or outcomes. The analysts added that this includes “initiating the project, planning, executing, controlling, quality assuring and closing the work of an identified and dedicated team according to a specified budget and timeframe.”

Importantly, it should be noted that the profession is not exclusive to only roles explicitly labelled as ‘project manager’, but to any role where specialist project management skills are used. This means that across sectors these roles can have very different titles, from the self-explanatory contract managers of procurement, or the campaign managers of advertising, to the likes of festival co-ordinators in the events sector, and many more. The roles in question also span all strategic levels of the profession, from strategic to tactical and operational positions.

Gross value added of project management profession

From a sector perspective, the financial and professional services, construction and healthcare industries make up almost two-thirds of the total project management GVA. At the same time, understandably, the UK Government has a huge project portfolio, which further drives the size of the GVA the sector contributes, thanks to megaprojects like HS2 and Crossrail.

Commenting on this to the report’s authors, Oliver Dowden, Minister for Implementation remarked, “Project delivery is at the heart of all Government activity, whether it’s building roads and rail, strengthening our armed forces, modernising IT or transforming the way government provides public services to citizens. Getting these projects right is essential if we are to ensure that we build a country that works for everyone.”

Throughout 2019, 26 major government projects were delivered, representing a fifth of the overall Government Major Projects Portfolio (GMPP) of 133 projects. According to the IPA annual report 2017-18, these represented a whole life cost of £423 billion. In addition to this were a plethora of smaller scale projects, and those in early development.

Elsewhere, with the increasing digitalisation of the economy impacting entities of all shapes and sizes, IT and digital transformations tended to dominate the projects of the UK scene alongside new product development projects, with a respective 55% and 46% of organisations in the research sample having undertaken these types of project in the past year. At the same time, this varied across sectors, and unsurprisingly, in the construction and local government sectors, fixed capital projects were the main project type undertaken.

Outlook

Looking to the future, 40% of business leaders expect project management will grow in the coming years due to the increased use of projects – or the ‘projectification’ of the UK. In a trend that has been witnessed elsewhere, organisations have to rapidly and continuously change in the digital age of business, driving the need for project management.

Outlook for project management services

An increased focus on value over cost – especially in the construction sector – and a forecast increase in the number of international projects are predicted to be key drivers of growth, according to the expert contributors. However, this will not happen in the absence of challenges; more than half of organisations expressed concern over the perceived impact of political uncertainty in the UK. Skills and capability shortages were also cited as a potential barrier by a third of organisations.

With regard to budgets, meanwhile, a third of those surveyed by PwC said they expect the size of project budgets will increase in the coming three years, while 40% anticipate a growth in project size. As the profession continues to mature, and as the recognition of the importance of good project management grows, it is expected that a greater proportion of project work will gain more distinct attribution to the profession itself, giving more recognition and appreciation to the role of the project manager.

Speaking on the findings of the study, Sandie Grimshaw, a Partner at PwC, concluded, “The project management profession is relatively new compared to some other professions, such as lawyers, teachers and doctors. However, as project management is a core competence vital to organisations in the UK, the profession is critical and will continue to grow in stature.”