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CEO Firings Are Down. Why?

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When it comes to the trends of the C-Suite, Booz & Company always has some interesting findings.

The company recently released their report on CEO turnover and tenure among the world's top 2,500 public companies. What caught my eye in this research report was there was a steep decline in CEO turnovers worldwide.

I asked one of the authors of the report, Booz & Company senior partner Gary L. Neilson anout why the C-Suite this year has not been a revolving door.

LL: In your report, you examine the role of the CEO and core senior management team, examining how they engage with the businesses they lead and the impact it would have on their tenure and turnover" what is the biggest take away out of this study?

GN: The biggest difference we’ve seen between the four corporate management models is the variation in CEO tenure. For example, CEOs at operationally involved companies have a median tenure of close to 4.9 years, nearly 25% shorter than those at highly diversified holding companies, whose CEOs serve a median of 6.5 years. Strategic management and active management companies have median tenures of 5.3 and 5.0 years, respectively.

There are also significant differences in the motivation behind CEO departure depending on the company’s respective management model; most (57%) CEO dismissals at operationally involved companies, for example, are a result of disagreements with the board – far more than at any other type of company. Merger and acquisition successions are the most prevalent for active management and operational involvement companies, occurring at 48% and 52% of companies, respectively.

LL: What were the reasons behind CEOs keeping their jobs this year?

GN: The global recession’s lingering effects have led companies to keep a steady, seasoned hand at the helm. Once we’re back into full growth mode, we expect CEOs to be held responsible in case their company fails to benefit from the upwind. We have also noticed that boards have gotten better at selecting CEOs and ensuring their smooth succession. Turnover rates have been very high over the past couple of years, so there just were fewer companies that hadn’t made a recent change in CEOs (Note: the average tenure of this year’s outgoing CEO class is 6.2 years)

LL: China had a lower turnover rate this year, why?

GN: As with the overall trend, a top reason for lower CEO turnover in China last year was better board governance—and the fact that more Chinese companies (with lower turnover rates) entered our sample of the top 2,500 largest public companies.

Further, the high degree of government ownership, even in Chinese public companies, influences CEO appointment (and turnover); political factors often seem more important than company performance. Many of the top Chinese companies still enjoy (quasi-) monopolistic positions, thus decreasing performance pressure on their CEOs. The Chinese economy being in hyper-growth mode also reduces performance pressure at the top.

LL: Let's talk about the BRIC countries. What kind of growth did you see here and what are your projections going forward?

GN: We found that the share of companies from emerging marketing in our sample of the top 2,500 publically traded companies has grown significantly - BRIC representation has shot up 24% annually. China in particular shows staggering growth, accounting for one in five new entries in our sample this year.

Further, in 2010, more than one quarter of the top 2,500 public companies now have their headquarters in emerging economies. Within a few years, if this pattern continues, the companies in the world’s mature Western economies could represent a minority of our sample.

LL: What was the biggest surprise out of your study this year?

GN: The biggest surprise was, when we segmented the data by CEO corporate roles, how high the turnover was for the single business companies that have operationally involved CEO roles, per question #1:

  • 36% of these CEOs had less than 4 years tenure compared to an average of 25% for other three types (Holding, Strategic Management, Active Management) combined
  • That tenure for outsiders at these companies was very short - 3.3 years (median?) compared to above 4 years on average or the other types
  • Operationally involved CEOs are much more likely to leave their positions due to board or power struggles compared to the other three types

LL: If you could sum up the stability of the C-suite in one sentence what would it be?

GN: Governance practices enacted over the past decade (e.g., separation of chairman and CEO roles), along with realigned expectations, have resulted in more of a steady state for the C-suite - that is, more turnover events are planned and fewer are unforeseen.

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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."