After three years of declining turnover among CEOs, churn at the top is back. As the economy improves, the rate of corner-office shakeups has picked up as more boards replace veteran CEOs with younger leaders with very different résumés. Many new CEOs have international experience and a track record in marketing or sales rather than finance or manufacturing, the specialties of CEOs two or three decades ago. They also haven't necessarily spent their careers at one company or in a single industry.
The rush to change corporate leadership is a turnabout from the management standstill that set in during the financial crisis. CEO turnover declined from 12.7 percent in 2007 to 9.4 percent last year, according to a study of Standard & Poor's 500-stock index and Fortune 500 companies by executive search firm Crist/Kolder Associates in Chicago. One likely reason: Boards were reluctant to change leadership during the recession, concerned that if a CEO left, investors might think the company was coming unglued.
New CEOs have fewer gray hairs; recruiters say executives approaching 60 are today often bypassed in favor of younger candidates. And they expect to serve shorter tenures: six to eight years, vs. 10 to 15 years a generation ago, according to a Booz & Co. study of CEO succession from 2000 to 2009.
Boards today also want CEOs who have run an international business, traveled extensively overseas, and have connections with executives and government leaders around the world—experiences they need to oversee big companies that often can derive up to half, or even more, of their revenues from foreign markets. Being a director of a public company also counts in an era of heightened corporate governance when CEOs must work more closely with their boards—and often report to a nonexecutive chairman.
Boards itching to change leaders often are starting from scratch.
Only 35 percent of 1,318 executives surveyed by Korn/Ferry International in December said their companies had a succession plan. A 2010 survey of 140 North American CEOs and directors found the respondents' boards averaged only two hours a year on CEO succession. Some 39 percent of respondents to the survey, conducted by executive search firm Heidrick & Struggles and Stanford University's Rock Center for Corporate Governance, said their companies had no viable internal CE0 candidates.
Source: Bloomberg BusinessWeek, February 7, 2011