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Chief executive 'churn' revealed as 'myth'


March 16, 2012 - Washington

The belief that company chief executives are highly vulnerable to being attracted to a higher paying role and regularly jump ship to other top jobs is a myth, a new study has discovered.

The research into the leadership structure of the UK's largest companies, carried out by the University of Southampton in collaboration with executive search consultants Thorburn McAlister, suggested that turnover rates or 'churn' in the position of chief executive are much lower than commonly perceived.

They examined data from companies in the FTSE-350 index to explore changes in senior executive and board positions over a five-year period and found that just 51 chief executives moved to their job from another chief executive position.

Also it found that 66 per cent of recruited chief executives in the FTSE-350 are internal appointments. This may indicate that boards wish to maintain strategic continuity by appointing home-grown talent.

Average length of service of a chief executive in the FTSE-350 is 6.35 years and 5.91 in the FTSE-100. Previous reports of tenure in the FTSE-100 have suggested an average figure of 3.25 years.

Markets appear to value long-service and maturity - with chief executives in service for more than 10 years demonstrating the highest growth in their company's share price.

And 85 per cent of chief executives in the FTSE-350 are of the baby-boomer generation (born 1945-65), with just 13 per cent from generation-X (born 1966-80) and none from generation-Y (born post 1981).

It also found that just 14 chief executives in the study were women.

"It is accepted wisdom that chief executives are highly vulnerable to being attracted to a higher paying role, ready to leave for a better deal - but our research challenges this," said Professor Malcolm Higgs, research leader and Head of the Southampton Management School.

"Evidence suggests their moving around occurs far less than assumed, with little movement from one chief exec position to another. In these financially turbulent times, with pay and bonuses in the spotlight, we should ask ourselves if high levels of remuneration are really keeping people in post, or if the impetus to move isn't as strong as perceived.

"Furthermore, the large number of current chief execs in the baby-boomer generation, and comparatively low numbers in generation-X, raises the question of whether we can maintain our chief exec talent? Do we have a talent gap? Or are we better at nurturing talent internally in companies than we have tended to think?" Professor Higgs added.

Researchers used the HemScott Company database on UK-domiciled and publicly traded stocks (now Morningstar Company Intelligence) to gather company data and details of directorships.

This was supplemented and verified with analysis from company websites and archived data.

Director at Thorburn McAlister, Anthony McAlister, stated, "This review will help inform organisations and develop better talent management practices. Year on year it will build into an outstanding resource for FTSE 350 stakeholders."

ANI

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