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The value of getting CEO succession right

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The value of getting CEO succession right

  1. 1. The value of getting CEO succession right Study of CEOs, Governance, and Success May 2015
  2. 2. Strategy& • This is the 15th year Strategy& has examined CEO successions and success among the world’s largest 2,500 public companies • This year’s study looks at trends in CEO successions across regions, industries, insiders/outsiders, and gender (among other analyses)… • … and looks in depth at the value of getting CEO succession right • Company performance is negatively affected in the year leading to and following the turnover regardless of the type of turnover, planned or forced—and the effects are more severe when a turnover is forced 2014 study of CEOs, Governance, and Success
  3. 3. Strategy& Every year, around 14% of the world’s 2,500 largest companies have a CEO turnover Over the past 15 years, companies have gotten a lot better at succession planning: the share of planned turnovers reached a record high in 2014 Source: Strategy& analysis Note: All figures may not add to totals because of rounding 0% 2% 4% 6% 8% 10% 12% 14% 16% 2.9% 2006 4.2% 3.4% 14.3% 1.8% 7.7% 9.1% 20102008 11.6% 2.2% 1.8% 2009 14.4% 6.3% 13.8% 2007 6.7% 3.4% 2005 15.4% 9.2% 3.6% 2.6% 2004 14.7% 7.8% 4.5% 2.4% 2003 9.8% 5.3% 3.2% 1.3% 2002 10.8% 5.0% 4.4% 1.4% 2001 10.9% 6.0% 2.4% 2.4% 2000 12.9% 4.6% 7.2% 14.4% 5.1% 2.2% Turnoverrate 2014 14.3% 11.2% 1.9% 1.2% 2013 14.2% 10.1% 2.6% 1.5% 2012 15.0% 10.8% 2.8% 1.4% 2011 14.2% 9.8% 2.2% 2.2% 6.4% 3.4% 3.2% CEO turnover rate by succession reason CEO turnover events as a percentage of top 2,500 public companies Forced Planned M&A
  4. 4. Strategy& However, any change at the top can be disruptive to a company $ $ $ Focus Priorities Confidence Job Security Factors affected by change $ Momentum $ Leading to lower performance
  5. 5. Strategy& Performance is negatively affected by a CEO turnover in the year leading to and following the turnover -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5TSR Year after turnover -3.5% Year leading up to turnover -2.3% Two years before turnover 0.5% Median total shareholder return1) for companies undergoing turnovers, relative to index, in the turnover window 2011, 2012 and 2013 turnover companies Source: Strategy& analysis 1) Total shareholder returns are regionally adjusted, meaning that performance is measured relative to a regional index (S&P 500, Brazil Bovespa, FTSE 100, CAC 40, etc.). Note: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information.
  6. 6. Strategy& And companies forced into CEO turnovers experience a much more severe drop in median TSR Source: Strategy& analysis 1) Total shareholder returns are regionally adjusted, meaning that performance is measured relative to a regional index (S&P 500, Brazil Bovespa, FTSE 100, CAC 40, etc.). Note: Exhibit excludes turnover events resulting from M&A, interims, and events with incomplete turnover information. Comparative median total shareholder return1) relative to index, in the turnover window 2011, 2012 and 2013 turnover companies -15 -10 -5 0 5 -0.6% Year after turnover TSR Year leading up to turnover -0.5% -13.0% Two years before turnover 1.6% -3.4% -3.5% Forced Planned As a result, we estimate that companies forced into CEO turnovers instead of planning them miss out on some $1.8bn each in shareholder value
  7. 7. Strategy& If companies can reduce the share of forced turnovers to 10% through better planning... …Large public companies could together generate $60 billion in shareholder value annually (if all else stays the same) CEO Succession Plan Source: Strategy& analysis Note: This analysis is based on turnovers occurring in 2011, 2012, and 2013 for which full turnover and market capitalization information are available. The analysis period is from one year before the turnover date to one year after it.
  8. 8. Strategy& To learn more, including how companies can improve their CEO succession planning, please visit: http://www.strategyand.p wc.com/chief-executive- study

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