There is no doubting the CEO exodus. Chief executive departures hit a 20-year high in the first half of 2022, with 668 chiefs leaving their roles at US firms between January and May 2022. This marks the highest total of CEO departures in this period since 2002, when metric tracking began, and is 24% higher than in the same period last year.
“The CEO exodus continues,” says Andrew Challenger, SVP, Challenger, Gray & Christmas, attributing the shifts to current economic conditions – rising inflation, recession concerns, and re-evaluation of priorities post-pandemic.
Amid current geopolitical and economic changes, the ‘Great Resignation’ phenomenon has impacted CEOs just as much as any other leadership role, Claire Skinner, Head of Europe and Africa for Heidrick & Struggles tells Business Chief. “Many leaders are seeing this moment of disruption as an opportunity for them to expand their impact and influence to innovate and find new ways to grow for the future,” she says.
“There has been an increase in opportunities around Boards of Directors, and some CEOs who still want to have an impact say they are more interested in taking a role on a Board. Still others are taking a step back, choosing earlier retirement, extended sabbatical or looking for a role that better aligns to their core values.”
The continued escalation in chief executive turnover, not to mention societal changes and demand for diversity, has prompted many organisations to increase investment in succession planning and widen their horizons in the search for their next leader.
Skinner says organisations not only recognise that there is now more at stake for society, and for companies and their boards, but that more is uncertain, and new skills and competencies are required.
And so, they are “returning to a more expansive view of CEO succession” and increasingly taking a broad, diverse, and multi-time period approach – considering external candidates and those from less traditional C-suite pathways.
“As companies look for diversity in CEO successors, whether it be gender, ethnicity or other, it is necessary to look at less traditional backgrounds,” says Skinner. “We are seeing significant investment in developing internal leaders and scanning external talent against the backdrop of rapidly evolving geopolitical scenarios and across multiple time horizons.”
Boards have long favoured internal, but are now widening search externally
Traditionally, S&P 500 boards have long favoured internal candidates, with internal promotions marking 80% of all CEO transitions in 2021. Korn Ferry data backs this up. In the Fortune 1000, many more boards promote internally than hire externally, though conversely, the private market is almost uniquely external.
Reasons for hiring internally are multiple, not least because an external candidate’s lack of internal social networks can hamper their effectiveness, a recent university study found.
John Kurtz, a Partner in the Leadership Change & Organization practice of Kearney tells Business Chief that it can be hard for external CEO hires to understand deeply the culture of a complex organisation and to read and then motivate the whole organisation. While the facts of a company – its markets, financials, strategic opportunities – can be quickly learned by most smart executives, it is the “ability to understand nuances and drive a change process that is the challenge”.
But Kurtz tells Business Chief that increasingly Boards are discovering they and their CEOs have not done a thorough job in truly preparing for succession – with many firms failing to plan for truly diverse candidates and innovative approaches to ESG.
“Gaps in this process have been exacerbated and become clear in COVID times as market and supply chain challenges have laid bare the gaps in many executives’ readiness to take on the really complex environments that many companies are now facing,” he says. “Demand for deep knowledge of operations and supply chain has increased significantly in the last two years, especially in consumer products and manufacturing sectors.”
Tierney Remick, VC and Co-leader of Korn Ferry’s Global Board and CEO Practice also points to lack of readiness of internal candidates and to the new pivot in business as growing reasons why external candidates might be favoured today.
Among other reasons, Remick cites a major organisational transaction that changes the profile need for a CEO, and demand for very deep turnaround skills.
External hires can bring fresh perspectives, innovative approaches
Skinner concurs that an external CEO is preferable if a company has a major strategic shift in strategy, operating model, or geography, requiring different experiences than those found internally.
“If an industry is being disrupted and requires different skills, or if they are entering a different cycle pivoting from growth to consolidation or turnaround,” she says. “Equally, an ethical issue may have been identified at the top, or investors are looking for a shift, and a new leader with external perspective may be required to drive a significant transformation.”
Starbucks is a case in point. The coffee chain giant, which hopes to name a permanent successor to the CEO role later this year, is only considering external talent for the top job – a deliberate strategy to find “a different kind of leader to manage changing worker and consumer behaviour”, Interim CEO Howard Schultz said. “For the future of the company, we need a domain of experience and expertise in a number of disciplines that we don’t have now.”
Kurtz argues that it is much easier in a situation that requires major transformation to have those changes implemented by an external CEO, one surrounded by a few key executives who share her or his drive for significant change. Conversely, it can be very difficult for a long-standing executive to assume a different, and strong, change-oriented stance if she or he was a significant part of the prior leadership.
“An external hire can bring fresh perspectives, innovative approaches, the ability to trade on cross-industry experience, and often an influx of needed specialised skills,” he says. “Now is an important time to call upon digital skills and experience, deeper supply chain and operations knowledge, and a range of experiences to bring to bear during this time of extreme change and uncertainty.”
Will tomorrow’s CEOs likely come via less typical C-suite roles?
In the search for the right skill sets, new perspectives, and expanded diversity, organisations are also looking beyond traditional C-suite roles for their hires.
“Our most recent Route to the Top report found that there has been an increase in the number of CEOs who have gained C-suite experience beyond the traditional CFO and COO roles,” Skinner tells Business Chief – with candidates increasingly selected from roles such as Chief Risk Officer, Chief Strategy Officer, and Chief Technology Officer.
Boards are following a similar pattern to organisations’ path to the top roles, says Skinner, pointing to the Board Monitor UK report which found that 17% of appointments were from roles other than CEO, CFO and COO.
This broadening of scope reflects the increased importance of functions such as technology, risk, and strategy, as well as the fact that the role itself is expanding far beyond its historical day-to-day running of the business. CEOs today need to champion issues such as sustainability, social justice, DE&I, and cybersecurity, both internally and externally, along with other issues specific to their business or geography.
“CEOs are also in the spotlight more than ever, which can be embraced or a source of tension, depending on both personality and shareholder preferences,” says Skinner. “Their actions are scrutinised by a larger number of stakeholders, and they have to be much closer to – and transparent with – their own employees.”
In this context, Skinner points to leadership capabilities such as agility, empathy, role modelling the organisational purpose, and fostering inclusion, which she says matter just as much today as specific areas of expertise.
“Though there will always be differences in emphasis based on sectors, markets and individual companies’ scale and business models, recent research has found there are four capabilities in which future-ready leaders consistently excel – leading through influence, driving execution, creating new thinking, and having an ownership mindset,” says Skinner.
This might be why head of division roles have become increasingly common stepping-stones to the top job, with 41% of new CEOs in 2021 holding such roles, according to research.
“Many companies have elevated the heads of their main divisions to their executive teams in recognition of the roles’ importance and to ensure that those leaders take part in key decisions,” says Skinner. “Such practices also give division heads first-hand experience with executive committees and make them stronger contenders for CEO roles.”
CTOs increasingly part of CEO succession planning
Kurtz tells Business Chief that while the CFO remains a very strong perch from which to view the company and know its board and shareholders, there are increasing discussions regarding the path from Chief Technology Officer (CTO) or even Chief Transformation Officer to the top.
“What we are seeing is an increasing realisation of how vital technology and operations are to the equation when a company needs to truly differentiate,” Kurtz says.
As more companies put technological innovations at the heart of their growth, the CTO is increasingly being groomed by corporate boards as part of their CEO succession planning, says Ash Athawale, senior MD for Robert Half’s executive search division.
And CTOs are increasingly viewing the CEO role as a natural progression. Korn Ferry research found that 51% of CTOs wanted to be CEO at some point during their career.
Notable chief technologist to CEO transitions worldwide include Hans Vestberg (Verizon), Chad Dickerson (Etsy), Bryan Dove (Skyscanner), Jamie Miller (GE Transportation), Greg Carmichael (Fifth Third Bank), Stephen Gillett (Starbucks), Philip Clarke (Tesco), Dawn Lepore (Schwab Co), Tim Campos (Facebook), and Parag Agrawal (Twitter).
However unusual appointing a CTO to the CEO role might appear, McKinsey argues that, for an organisation in need of a major digital transformation, elevating a technologist might make smart business sense.
That’s not to say the ranks of future CEOs will be filled with former CTOs, nor with external candidates, but in considering wider options shows that organisations are broadening their outlook in finding the best person for the job.
“Obviously, financial knowledge is extremely important,” says Skinner, “but we are seeing that a wider selection of C-suite roles is now in the running for leadership. The opportunity to dive into a deeper pool of talent and expertise, rather than depending on one specific person to fill the role means the organisation can trial different candidates to see who is best suited for the role. By limiting themselves to only the CFO, for example, organisations rule out other candidates who may be better suited to the position.”
But, when it comes to tapping more diverse candidates for the top job, are organisations doing enough?
Kurtz believes not, and argues that not doing so is one of the largest challenges and missed opportunities for business worldwide. “Reportedly, just 13% of CEOs in Singapore are women, that’s the apex,” says Kurtz. “Even allowing for the notion that we’re still catching up from years of disproportionately preparing men for leadership roles, it seems inescapable that the best person is not always getting the top job.”
External CEOs: steps to accelerating success
While an external candidate can give an organisation a fresh perspective, one that is outside-looking, offering a company the opportunity to get ahead of their competitors, doing so is not without risks which need to be thoughtfully considered and managed.
“We have to remember that fundamentally Boards are conservative,” John Kurtz, a Partner in the Leadership Change & Organization practice of Kearney tells Business Chief. “A mistake in choosing a CEO from the outside who doesn’t fit can result in a great deal of turmoil for the Board… so, risk-aversion and the conservatism that results are often at the heart of not doing truly thorough searches for CEO succession.
“It nearly always feels safer to Boards to go with someone who knows the company and is an insider, so a Board that does go outside is often very well attuned to the specific skills needed in these very uncertain and complex times.”
If and when a company does appoint an external leader, companies should be proactive in helping them to effect change, and fast, recommends Claire Skinner, Head of Europe and Africa for Heidrick & Struggles.
“Newly appointed external leaders are at risk of not reaching their potential unless their new companies actively take steps to address issues that commonly act as speed bumps to the acceleration that executives seek,” she says. “The initial set of decisions and actions that a newly hired CEO makes will create a branding effect that is difficult to reverse.”
Skinner points to five steps external CEOs should take to have the best chance at successful acceleration – 1) find new strengths for a new organisation; 2) build an effective influence base; 3) define success and priorities; 4) mobilise the top team quickly; and 5) shape the culture.
“Intelligent acceleration requires new CEOs to assess and develop themselves to be most effective in their context, to understand their organisation’s influencers and culture, and how to leverage both for success, to develop a detailed and shared understanding of success and priorities, and to mobilise their top team,” says Skinner. “Those who take the time to do so put themselves on the best path toward lasting success.
“The opportunity cost of making the wrong decision is way more important than the extra time, money, and effort to onboard the next leader.”
“The best CEOs are continuous learners”
Regardless of the route taken to the top, the best performing chiefs have a true profit and loss mindset, not a functional one, says Tierney Remick, VC and Co-leader of Korn Ferry’s Global Board and CEO Practice. “Our data shows strong commercial leaders, strong operational leaders, and in some cases strong innovation leaders becoming CEOs.”
According to Remick, the highest performing CEOs know how to drive the business today while at the same time envisioning the future. “We call it the ‘perform and transform’ continuum, but it is really about being able to manage the natural polarities of driving for results while continuously anticipating how to meet the future.”
Remick says that the best CEOs, now and in the future, are not necessarily the most highly educated or the most well-trained early on, but they are continuous learners “who have evolved themselves and understand the distinction between leading versus telling”, and distinguish themselves with certain mindsets and values:
- They have real courage. They speak up on those issues that matter to the ecosystem the lead and represent
- They are very resilient given the ambiguity and uncertainties that are inherent in today's dynamic market
- They are Inclusive and build true followership they don't just demand it
- They have integrity and lead with a real sense of purpose and mission
The View from India
Sanjay Shetty, Director of Professional Search & Selection and Strategic Accounts for Randstad India discusses CEO hiring trends in India
While CEO hiring in the west leans towards internal candidates, in India, external candidates are favoured with roughly 65-70% of hires external and 25-30% internal, according to Sanjay Shetty, Talent Partner at Randstad India, a leading HR services provider in the country.
However, more organisations in India are now investing in their internal career streaming and succession planning, he says.
Sanjay acknowledges there are disadvantages to hiring externally, and especially today. “The gestation period has shortened, and the performance threshold is higher, so external candidates really have to hit the ground running, which can be challenging without the social connections and internal network.”
That said, external hires can bring new ideas, fresh perspectives, and no baggage – something many organisations are looking for in the post-pandemic era.
“The pandemic changed the way we work, from increased digitisation to changes in the supply processes to a work-from-anywhere model, and organisations are looking for leaders who understand this and can get on board with the new world of work,” says Sanjay.
“The risk-taking appetite has changed and the threshold for performance has decreased, and companies need leaders with a different set of skills. They want CEOs with new and innovative ways of thinking, who can take risks, and who can change the rules of the game and take the organisation forward amid an unpredictable future.”
Chief executive tenures in India have shortened in recent years, from an average 5-6 years to around 3.5 years, according to Sanjay. “We find that when CEOs stay beyond the 3 to 4-year mark, the organisation really takes a quantum leap, but for those who remain beyond 8-9 years, it also sometimes tends to depreciate value with organisations in need of a fresh perspective.”
Among CEO hiring trends Randstad India is seeing picking up pace is the recruitment of Interim CEOs and Co-CEOs. “Interim CEOs function like project managers – they come in, undertake an organisational turnaround, then handover and leave,” says Sanjay.
“Traditionally, in India, there is one CEO who reports to the Board, and everything aligns to that one person. But now we are talking to customers about multiple CEOs and divisional CEOs, particularly among larger companies.
“Organisations see the advantages of sharing the top job, as this leverages the individual strengths of the leaders, and delivers on risk mitigation. It can help a company multiply from a growth perspective and offers more consensus decision-making.”
And while diversity has become increasingly important to organisations in India, it hasn’t yet reached CEO level in most companies, says Sanjay, with Boards more focused on finding exactly the right candidate.