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Anadarko Petroleum Corp. (APC), 3M Co. (MMM) and Johnson & Johnson (JNJ) were among a record percentage of companies last year replacing chief executive officers as part of organized succession planning, according to a new study.
While high-profile CEO replacements at Best Buy Co. (BBY) and Yahoo! Inc. (YHOO) attracted headlines because they occurred after the predecessor was forced to resign, about 72 percent of appointments were planned in 2012, according to Booz & Co.’s annual CEO study of the world’s 2,500 largest public companies. That’s the most since Booz began the survey in 2000.
“Boards are taking a much more active role in the selection of the CEO,” said Gary Neilson, a senior partner at Booz and one of the study authors. “They are getting ahead of the game in terms of improving their succession process.”
Directors are responding as large institutional investors such as the California State Teachers’ Retirement System, corporate governance experts and new rules on succession planning disclosure force them to look ahead for CEO retirements and departures and identify replacements earlier.
Forced appointments were behind 19 percent of the 300 new CEOs selected last year, the second lowest since the study started in 2000, Booz said. In 2006, only 46 percent of placements were planned, compared with 69 percent in 2011. Last year, internal candidates accounted for 71 percent of CEO placements and a quarter had worked at the same company their entire career, the Booz study found.
“Insiders appear to perform better than outsiders,” said Ken Favaro, a senior partner at Booz and another study author. “The message isn’t, ’Thou shalt not hire an outsider.’ But it should be, ’Thou shall be very careful about when one wants to make an exception.’ It’s always a question about how much the board wants to shake up the process.”
According to another study by executive recruiter Spencer Stuart, 54 percent of new CEOs at S&P 500 companies last year were planned and another 19 percent were related to either a retirement or poor health. Three percent of CEOs were ousted and 16 percent stepped down, the study found. Twenty-seven of the 37 CEOs who left S&P 500 companies last year were replaced by executives from within the same company, Spencer Stuart also reported.
At 15 percent, 2012 had the second-highest percentage of CEOs departing, according to the Booz report. The study also found that 81 percent of the companies that hired a new CEO picked a leader from the same country where the company has its headquarters and 55 percent were in the same industry.
Booz, which advises companies on executive appointments and other management tasks, also found that only 5 percent of new CEOs last year were women, up slightly from 3 percent in the previous three years.
CEO turnover will probably increase as companies stabilize after the global recession because many found it “risky to change the jockey when the horse is sick,” Favaro said. Now boards are more comfortable making a change, he said.
“We hope people will put even more emphasis on planned CEOs,” Neilson said. “Coming from inside is often a good idea because internal folks have better returns.”
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