A new chief executive in one of Australia’s top corporates has less time to succeed. This year 16 new ASX100 chief executives were appointed in the eight months to the end of February and, based on the trend, can expect to be in the role for just 3.9 years.
Prior to the GFC, chief executive turnover in the ASX100 averaged 9 per cent per year in the five-year year period to 2007. Then, in 2009, it hit 22 per cent, falling back to 17 per cent at April 2012.
Corporate governance demands by investors, globalisation and short-termism had their impact, according to the recent Goldman Sachs Australia report ‘CEO turnover: implications of declining tenure and longevity risk.’
Sector variations exist. Resources and energy companies have seen CEO tenure increase over the past decade, even through the GFC. industries such as communications, media, financials, infrastructure and utilities, had the highest turnover.
The report also notes that the window of opportunity for a CEO to execute on strategy is narrowing to around two to three years, after which time their position becomes precarious if unsuccessful.
"A strategy that delivers negative returns in the first few years is potentially a career-limiting move for any incoming CEO given the heightened scrutiny to produce short-term results and boards’ apparent increased sensitivity to performance,” the report states.
It goes on to say: "CEO tenure is impacting decision-making, leading to insufficient regard for longer-term strategy, and discouraging long-term investment and value creation.”
"Looking at the median returns of the ASX100 companies over the past decade, there is a very clear correlation between the number of CEOs a company has had and total shareholder returns – the market has rewarded CEO stability,” is one of the report’s key findings.
What are some ways to smooth the transition for a new chief executive? They do find themselves under intense pressure to perform, even though the first year is obviously one of change in emphasis and direction.
The transition roadmap and coaching plan set by the board must be clear on what a new CEO should achieve and in what time frame.
They are expected to quickly diagnose the business and know the organisation at a systemic level; have broad and frank dialogues to reach agreement on performance, clarify expectations, negotiate for resources, assess people, steer communications, be the company’s public face; and identify when and how to achieve momentum through early wins.
What emerges should be a compelling story on how to reset corporate strategy and mend the organisational fault-lines.
Then new relationships must be shaped – with the chair and directors, those direct reports that form the executive committee, heads of divisions, emerging talent and importantly shareholders, stakeholders and customers. It helps to accurately identify allies and resistors.
Incoming CEOs disrupt the status quo. There will likely be executives whose own careers have been stalled by an outside appointment or have their own view of how to operate, or no longer fit within the renewed structure.
Group dynamics may be the significant transition issue for women in new CEO roles. Their leadership and authority is scrutinised, particularly as women represent just 3 per cent of CEO ranks.
Pulled in many directions, perspective and context is drawn on by any new CEO. A range of people will rush to offer advice, many with an agenda, but few with the valuable insight to see the company systemically and correctly prescribe. Understandably, new CEOs seek and rely on a trusted confidant or mentor with whom to discuss plans and people.
Recovering from a bad start is a hard task. Getting the first year right is critical to signal the signature strengths that will mark the CEO’s ongoing legacy and avoid becoming a statistic.
Dianne Jacobs is founding principal of <The Talent Advisors> (http://www.thetalentadvisors.com) a boutique consultancy specialising in talent capital, board CVs and executive coaching. She tweets on leadership via <@talentadvisors> (http://twitter.com/talentadvisors)