Booz & Co: Poor Succession Planning Saves Bad CEOs
If you think that poor-performing CEOs face a better chance these days of getting the ax, think again.
That's the conclusion of a new Booz & Co. (formerly Booz, Allen, Hamilton) report that examined the behavior of 2,500 companies in 1995, 1998 and from 2000 to 2007. It concluded that global managements turned over only 13.8 percent last year, which was the third year of declines from a high of 15.4 percent in 2005.
"It's good news for the wrong reasons," report co-author Gary L. Neilson, a report co-author and senior partner at Booz's Chicago office, told me. While the report shows that companies are avoiding the "short-termitis" of looking only to the next quarterly earnings, they are also missing the bigger picture in the longer run. "The companies are not developing people enough and not thinking about leadership development," Neilson told me. "And it's not just at the CEO level but all the way down. The real problem is that we're not moving them (CEOs) out because there's thin pickings (for a replacement)."
A few other points in the report:
- Europe leads the U.S. in CEO turnover at 17.6 percent in 2007
- Succession patterns vary by region meaning that in North America, new CEOs serve for a period as "apprentices" under the watchful eye of a chairman who used to be CEO. In Japan, being chairman is largely ceremonial.
- If you are both chairman and CEO, your chances of getting whacked are lower.
- The "two year" rule, which holds that CEOs are ousted after two years of bad returns, is a fallacy.
- Boards still opt for outsiders to become CEO and the outsiders tend to underperform.