Big Companies Prefer Insider CEOs, Finds Strategy& Study

NEW YORK, NY--(Marketwired - May 4, 2015) -  When it comes to choosing a new CEO, most large companies tend to choose familiar faces: insiders, who already work at the company, and who come from the same industry and from the same region as company headquarters.

In fact, the vast majority of 2014's incoming CEOs -- 78% -- were promoted to the top from within their companies -- the highest percentage since 2011.

That's according to the newly released 15^th annual study of CEOs, Governance, and Success by Strategy&, a part of the PwC network. The study examines CEO turnover as well as incoming and outgoing CEOs at the world's 2,500 largest public companies.

Companies Tend to Promote New CEOs from Within, Which Corresponds with Higher Shareholder Returns

Insiders, CEOs promoted from within, made up the vast majority of new CEOs at large companies last year. The percentage of 2014's incoming CEOs who already worked at the company climbed to 78% -- an uptick from 76% in 2013 and a sizeable jump from 71% in 2012.

"In 2014, we saw almost exactly the same number of turnovers as the year before: 357," says report co-author Ken Favaro, Senior Partner at Strategy&. "And the demographics of the incoming CEOs indicate that companies continue to hire CEOs who are familiar to them."

"Insiders often give companies some advantages. Our research shows that insiders typically have slightly longer tenures and have delivered higher total shareholder returns -- annualized and regionally adjusted -- over their entire tenures in 10 of the 15 years we have tracked," adds Gary L. Neilson, report co-author and Senior Partner at Strategy&.

But "Global" CEOs Are Rare, Even Though There Could Be Advantages

The "global CEO" seems to be a rarity at the world's largest companies, which tend to prefer native chief executives who have worked locally. In fact, big companies overwhelmingly continued to choose new CEOs from close to home:

• Of last year's incoming class of chief executives, 85% were nationals of the same country as their company's headquarters, rising from 80% in 2013 and 81% in 2012. 67% of these incoming CEOs have only worked in the same region as the company headquarters.
• Just 17% of incoming CEOs at the highest performing companies have been from a different region over the past five years, compared with 11% at the lowest performers.

Women CEOs on the Rise, But Still Few and Far Between

Continuing the slowly increasing trend, women made up 5% of 2014's incoming CEOs, or 17 incoming CEOs, up from 3% in 2013. The study shows that the two most startling findings from last year hold: between 2004 and 2014, women CEOs have been outsiders more often (33% of women versus 22% of men) and have been more often forced out of office (32% of women versus 25% of men).

"Although the share of women CEOs worldwide remains pathetically low, the trends we are seeing are promising, and should have a meaningful effect over time," says Favaro. "We expect that a third of all incoming CEOs will be women by 2040."

Other Notable Study Findings

• Forced CEO turnovers mean that big companies have foregone on average $1.8B more each in relative median shareholder returns than companies undergoing planned successions.
•  The share of planned successions has risen by almost 30% -- from 63% to 82% -- between 2000-2 and 2012-4.
• For the fourth year in a row, companies in telecommunications services have held the highest turnover rate -- above 20% since 2011 -- compared with other industries.
• Almost 60% of last year's incoming CEOs were from the same industry.
• Brazil, Russia, and India had a high CEO turnover rate (15.9%), but that's a considerable drop from their all-time high of 24% in 2012. Japan had the lowest rate of CEO turnovers, at 12%.

Methodology

Strategy& identified the world's 2,500 largest public companies, defined by their market capitalization (from Bloomberg) on January 1, 2014. We then identified companies among the top 2,500 that had experienced a chief executive succession event and cross-checked data using a wide variety of printed and electronic sources in many languages. For a listing of companies that had been acquired or merged in 2014, the firm also used Bloomberg.

For more information, visit www.strategyand.pwc.com/chiefexecutivestudy.

About Strategy&
Strategy& is a global team of practical strategists committed to helping you seize essential advantage. We do that by working alongside you to solve your toughest problems and helping you capture your greatest opportunities. We bring you 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the task. We are part of the PwC network of firms in 157 countries with more than 195,000 people committed to delivering quality in assurance, tax, and advisory services.

Follow us on Twitter, LinkedIn, and YouTube.

© 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.