Boardroom verbal brawls are one major factor for increased CEO turnover at the world’s largest companies, with power struggles getting worse.
The number of CEOs leaving because of conflicts with the board increased from 2% in 1995 to 11% between 2004 and 2006. In Europe, boardroom power struggles drove 22% of CEO departures in 2006.
This data comes from a new Booz Allen Hamilton report, which finds the average CEO tenure increased to 7.8 years globally in 2006, with CEOs in North America averaging 9.8 years on the job. The study says Asia-Pacific reached its longest-ever average tenure of 9.5 years. Europe experienced a decline to 5.7 years.
In addition, the CEO succession data showed that corporate boards have made two fundamental shifts in CEO selection and oversight. First, boards are becoming less tolerant of poor performance. Second, they are more likely to split the roles of CEO and chairman, while recruiting chairs who have not previously served as a company’s CEO.
Steven Wheeler, Booz Allen’s senior vice president, calls it the “era of the inclusive CEO, who embraces and reflects the concerns of board members, investors, and other constituencies.”
Performance Matters
Performance-related turnover accounted for 32% of departing CEOs.
For example, a review of 2006 data showed that a CEO who delivered above-average returns was almost twice as likely as one delivering sub-par returns to remain CEO for more than seven years.
This was compared to 1995 data, showing that underperforming CEOs stayed in office as long as high performers.
CEO on the Side, Please
The firm’s study, “CEO Succession 2006: The Era of the Inclusive Leader,” also points out that independent chairs are best.
Booz Allen says investors enjoyed the highest returns when the chairman was independent of the CEO, compared to when the CEO also held the title of chairman, or when the chairman was the prior CEO.
The 2006 data shows all underperforming CEOs in North America with long tenures had either held the additional title of chairman or served under a chairman who was the former CEO.
In addition, CEOs who rose from within the company were the most successful, as the data shows that outsider CEOs deliver worse returns to investors.
Booz Allen says most boards today at successful companies have at least one internal candidate ready to take the helm.
Booz Allen studied the 357 CEOs of the world’s largest 2,500 publicly traded corporations, evaluating information on CEO departures for 1995, 1998, 2000, 2001, 2002, 2003, 2004, and 2005.