CEO turnover hits record high - study | Fin24
 
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CEO turnover hits record high - study

Jul 23 2019 19:10
Fin24

CEO turnover hit a record high of 17% in 2018, a study by Strategy&, PwC's strategy consulting business, has found.

The study analysed CEO succession at the world's 2 500 largest public companies over the past 19 years.

2018 also showed a rise in the share of CEOs who were forced out of their positions for ethical lapses. More CEOs (39%) were forced out for ethical lapses than financial performance or board struggles, which PwC described as a first in the study’s history.

This number rose 50%, as compared to 26% in 2017.

The study defined dismissals for ethical lapses as the removal of the CEO "as the result of a scandal or improper conduct by the CEO or other employees", for example fraud, bribery, insider trading, inflated resumes or environmental disasters.

Zero tolerance

The increase in this type of dismissal "reflects several societal and governance trends", PwC said, including more intervention by regulatory and law enforcement authorities, as well as rising pressure for accountability of CEOs and zero tolerance among boards for executive misconduct.

Gerald Seekers, Head of People and Organisation for PwC Africa, said the company's research indicated that boards of directors, institutional investors, governments, media and other stakeholders are holding chief executives to a "far higher level of accountability" for corporate fraud and other ethical lapses than in the past.

Despite the high turnover in 2018, however, PwC did also find that there was a core group of chief executives "holding steady", which had a positive impact on performance at their organisations.

"While the median tenure of a CEO has been five years, 19% of all CEOs remain in position for 10 or more years," PwC said in a statement on Tuesday.

"Despite disruption, intense competition and eager investors, the median tenure within the group is 14 years with these long serving CEOs who have better performance and are less likely to be forced out than not long serving CEOs."

Jonathan Cawood, Head of PwC Africa Strategy&, said CEO succession was "one of the most important responsibilities of the board of directors".

"Many companies are not fully prepared for CEO departures even though succession planning is one of their main responsibilities. Too often boards are caught unprepared when their CEOs step down – whether they are retiring, moving on to other opportunities or leaving under pressure."

Cawood added that leadership transitions cause uncertainty, and that until a suitable replacement is found, the succession process is likely to "disrupt operations, make employees and shareholders nervous and […] even fuel negative publicity".

"Many companies are not fully prepared for CEO departures even though succession planning is one of their main responsibilities. Too often boards are caught unprepared when their CEOs step down – whether they are retiring, moving on to other opportunities or leaving under pressure. Transitions cause uncertainty. When the board is looking to find a suitable replacement, it is most likely that the succession process will disrupt operations, make employees and shareholders nervous and can even fuel negative publicity.”

South Africa has faced a slew of recent exits by top executives, both in the private sector and at its state-owned companies. Examples include Eskom, Old Mutual, SAA, Necsa, and TymeBank. Old Mutual and ex-CEO Peter Moyo have been facing off in court as he disputes his dismissal.

Tourism South Africa CEO Sisa Ntshona, meanwhile, was suspended in April, while Transnet made headlines for a series of executive suspensions and the contested axing of Siyabonga Gama as CEO in 2018. In May this year, the contract with Tau Morwe – who was appointed acting CEO in Gama's place – was not renewed, and he was replaced by Mohammed Mahomedy.

transnet  |  tymebank  |  eskom  |  old mutual  |  ceos  |  leadership  |  soes
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