Trends in C-suite and board level talent change
Has the average tenure of a C-suite professional changed and what does this mean for businesses?
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If there is one quality business leaders have needed over the last three years, it is adaptability. In the last few years they have had to navigate:
- pandemic-related restrictions and the hybrid working boom,
- digital transformation,
- supply chain bottlenecks,
- geopolitical headwinds,
- rising inflation and energy costs, and growing pressure from regulators and stakeholders to deliver on environmental, social and governance (ESG) issues.
Amid this disruption, LHH has explored the trends in changes of leadership and if leadership turnover has increased or decreased.
More leaders are being found from within the business
A recent report exploring trends in new CEO appointments to the largest companies across 25 markets globally found that the rate of appointments decreased over the last year when compared to the previous 12 months. There were 140 appointments between July 2021 to June 2022, and 145 appointments in the same period between 2020-2021. This decrease was seen in 21 out of 25 markets, including the UK, reflecting the need for leadership stability at a time of unprecedented challenges for people and economies.
Despite this slowdown, a third of companies included in the study have seen a change in CEO since the start of 2020 – new appointments are still necessary in (and because of) these uncertain times. But of those new CEOs, a growing number are appointed internally. In 2022, 64% of new CEOs were appointed internally, compared to 61% in 2020 and 2021. Though variations exist across markets, a greater focus on internal appointments suggests companies are relying more on leadership development to fill business-critical positions.
-3.35% decrease in new CEOs appointments
July 2021 - June 2022 = 140
July 2020 - June 2021 = 145
New CEOs appointed internally
2022 = 64%
2021 = 61%
2020 = 61%
29% of new CEO appointments had no prior C-suite experience
Source of CEOs
Newly-appointed CEOs are also less likely to have been a CEO before. In 2022, 69% of new CEOs are first-time CEOs, compared to 48% in 2021. This suggests companies are prepared to take greater risks to secure leaders who can manage the increasing expectations placed on them from stakeholders, investors and even consumers.
The pool CEOs are picked from is widening. In 2022, 29% of new CEO appointments had no prior C-suite experience, compared to 17% in 2021. While most CEOs (34%) join directly as CEO, a significant proportion (25%) joined the company as a ‘direct report to the CEO’, typically two levels below C-suite, suggesting this is a succession planning strategy that works for many companies.
In 2022, head of division was the most popular route to CEO for those appointed internally, with 24% of division heads being promoted to CEO, compared with 16% of CFOs.
Boards are increasingly looking for different types of leaders – people who bring a new perspective or diverse, cross-sector experience. This is supported by the fact that only 18% of CEOs are long tenured and joined the company as an associate or intern.
Successful futures need succession planning
Change to the dynamics of leadership transition is reflected in businesses of all sizes. Four in 10 large family businesses have changed their succession plans since the pandemic. The next generation is playing a bigger role in management at an earlier stage to prepare for leadership, while previous generation leadership takes a step back.
Succession planning remains important, especially for the 69% of family businesses that have a plan in place. The financial value of succession planning cannot be underestimated for privately and publicly owned businesses. Research looking at over 600 CEO turnover events found that CEO succession planning – and making that plan public – smooths any negative market reaction that can occur when a leadership exit is announced.
4 action points for C-suite executives
- Plan for the worst, don’t just hope for the best
The pandemic revealed the importance of having an emergency succession plan in place, as well as contingency plans for different scenarios to deal with crises. Don’t delay this. Vote on your plan internally to formalise it but regard it as a living document that will inevitably need updating as circumstances change. - Give yourself more choices
Diversify talent pipelines at different levels of the company and push CEO succession planning into the wider company, at least two levels below C-suite. This will create a broader, stronger pool of potential leaders internally and help the business construct career development paths to help retain talent. - Identify and nurture top talent early
Implement initiatives to identify leadership talent early on and nurture talent through tailored leadership development programmes that align with your overarching succession plan strategy. Offer flexible working options where possible to help attract a more diverse pool of candidates to roles at all levels. Invest in line managers to give them the skills and resources they need to nurture leadership talent with support from the board sponsors. - Focused learning for future leaders
Assess the competencies of potential leaders through a combination of career conversations, leadership assessment tools and coaching. This will help identify and address areas for improvement. With more CEOs being appointed internally without C-suite experience, this approach can prepare potential leaders for the next step up.
About ICEO
The International Centre of Executive Operations (ICEO) is a boutique service which provides a bespoke service for C-suite executives exiting a business.
ICEO provides their clients with comprehensive advisory support, connections, and resources for all career options—including corporate roles, private equity and venture capital roles, advisory work, starting or purchasing a business, alternative careers, board service, portfolio careers and active retirement.
References:
Heidrick & Struggles, Route to the Top 2022, Date of Analysis: September 10, 2022.
Spencer Stuart CEO Succession Report, Don’t Wait to Prepare for an Emergency Succession, July 2021.
KPMG Private Enterprise, Family businesses look to next generation to drive change, November 2022.
Social Science Research Network, CEO Succession Planning and Market Reactions to CEO Turnover Announcements, October 2022.