POSTED: April 25 2016
UK companies increasingly looking external for the top role

UK companies increasingly looking external for the top role

UK companies are more likely to choose a new CEO from outside of the company than ever before, but also more likely to force them out in times of difficulty. This is according to the annual CEO Success Study from Strategy&, PwC’s strategy consulting business.

The research, which tracks CEO succession at the world’s largest public companies (2,500 globally, 300 in the UK), shows that over half (58%) of all CEO appointments to UK companies in 2015 were external hires. This is a record high for the UK since the study started in 2004 and much higher than the four year average of 40%.

This goes against the global norm, where the majority of companies continue to promote people already working at the company to the CEO position. Only 23% of companies globally appointed an external hire as CEO last year.

However, the research indicates that UK companies’ decision to hire from outside of the company isn’t necessarily paying off. Over the last four years, nearly three in ten (29%) external CEOs who left the company were forced out, compared to only two in ten (19%) of internal CEO hires. If you remove the CEOs that left via M&A, four in ten external CEOs were forced out compared to just 23% of insider CEOs.

CEO turnover is also at a record high in the UK, at 19.3% in 2015 (2014: 18.3%). Only Brazil, Russia, India and Japan had a higher CEO turnover rate than the UK last year.

Ashley Unwin, UK consulting leader at PwC, said:

“Hiring a CEO from outside the company used to be seen as a last resort. That is not the case anymore, as UK companies are making more external CEO hires than ever before. This strategy seems to be paying off for companies globally as external hire CEOs are delivering higher total shareholder returns over the past three years. The opposite is true in the UK, where external CEO hires are underperforming their internal peers.

“The high proportion of external CEO hires in the UK who are then subsequently pushed out of the company raises concerns that UK companies’ succession planning is falling short.”

Gary Neilson, principal at Strategy&, said:

“Boards of directors following well thought-through succession plans should have a deep bench of strong, internal candidates. However, when the company needs to make transformational changes boards should factor the outsider option into their succession planning.

“Whether the new leader comes from inside or outside the organisation, companies than plan for CEO succession more carefully are more likely to be better performing companies in general.”

Women still underrepresented at the top

The research reveals that women are still underrepresented at the highest level in UK companies, with only two women appointed to the CEO position in the past year out of a potential of 44 roles (4.5%). This is down from 5 out of 47 CEO appointments in 2014 (10.6%). Globally, just 10 out of 359 incoming CEOs were women. However, this is the third year in a row that there has been at least one incoming woman CEO in the top 300 UK companies.

Globally, the research finds that female CEOs are more likely to be hired from outside of the company than male CEOs are. Nearly a third (32%) of all incoming and outgoing female CEOs from 2004 to 2015 were outsiders compared to just 23% of male CEOs.

Ashley Unwin, continued:

“Great progress has been made getting more women into board roles in UK companies, but our research reinforces why that momentum needs to be maintained at the executive level. Companies should be challenging themselves on why they don’t have more women poised to take on executive level roles. They should work to identify and build their future pipeline of women leaders, and continue to monitor their progress. The executive level is where women and diverse leadership teams can make a tangible difference to the culture and management of a business.”

The Class of 2015:

Other findings on the incoming class of CEOs in the UK:

– The average (median) age of newly-appointed CEOs in the UK is 52. The same as Western Europe, but a year younger than the global average.
– CEOs in the UK are the most likely to have worked internationally. 45% of incoming CEOs in the UK in 2015 have worked in other regions, compared to only 28% globally.
– UK CEOs are the least likely to have stayed at one company their entire career – only 3% of incoming CEOs in 2015 has worked at the same company for their whole career (global average 26%)
– CEOs in the UK stay in the role for an average (median) of 5.1 years, down from 7.3 years in 2014. This is shorter than Western Europe (5.5 years) and the US / Canada (7.5 years).
– Three in ten of the incoming CEO class of 2015 have MBAs – slightly more than Western Europe but behind the US / Canada, where over four in ten incoming CEOs have an MBA

Full press release on pwc.blogs.com