UK - Dividing the roles of chief executive and chairman does more harm than good to a company's performance, a major new study claims.
Management and technology consultant Booz Allen Hamilton’s findings, which run counter to the expectations of corporate governance activists, are based on its survey of the world’s 2500 largest publicly traded corporations.
The study, which examined the links between CEO tenure and corporate performance, found that:
- Companies that split the CEO and chairman roles perform worse than companies with a single chairman/CEO. Returns to investors are worse – 4.7% per year lower in Europe, and 4.1% lower in North America – when the roles are split.
- A total of 9.5% of the world’s 2500 largest public companies changed chief executives last year – down from 10.2% in 2002. The highest rate was in Japan, where 13.8% of the largest companies changed their CEO. The UK’s CEO succession rate was 10.0% – the second highest in Europe after Germany (12.0%).
Booz Allen Hamilton vice-president Alan Gemes said: “By and large, the ‘imperial CEO’ doesn’t and shouldn’t exist.
“Boards of directors seeking improved performance are quick to replace an under-performing CEO – often with an outsider, viewed as best equipped to shake up the company.
“Yet the study found that CEOs hired from the outside do not perform as well as leaders groomed from within, and are forced out of office more often.”
The study showed that the industries with the highest rates of CEO turnover were utilities (14.3%), energy (11.5%), healthcare (11.3%) and materials (10.7%).
For the period covering 1995 to 2003, telecommunications had the highest turnover rate (12.0%), followed by energy (11.9%), materials (11.5%) and industrials (11.1%).
Financial services was the safest industry for CEOs.
During the period between 1995 and 2003 the financial services industry had the least turnover overall (7.7%) and the fewest forced departures (1.8%).
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