CEO Succession 2000-2009:CEO Succession 2000-2009: Decade of Conversion and Decade of Conversion and

CompressionCompression

Individual Course Assignment: PowerPoint Presentation Individual Course Assignment: PowerPoint Presentation (A Supplement to Essay Report for IBS 204)(A Supplement to Essay Report for IBS 204)

Presenter: M. Scott GreenPresenter: M. Scott GreenGolden Gate UniversityGolden Gate University

Course Instructor: Nicholas GurneyCourse Instructor: Nicholas GurneyMonday, April 10, 2023Monday, April 10, 2023

Historical References:Historical References: (Facts and Figures)(Facts and Figures)

CONVERGENCECONVERGENCE

Ten-Year Data Analysis Study

Top 2,500 Public Companies in the World

Robust Database Comprising 3,719 CEO Turnover Events Worldwide

Four Major Factors Converging Around New Global Norms

The predominance of insiders

The split of the CEO and Chairman roles

The growth of an apprentice model (new CEO’s predecessor assumes the role of Board Chairman)

The consistency of industry turnover rates

COMPRESSIONCOMPRESSION

Data and information collected and chronicled from more than a dozen interviews with CEOs in the United States, Europe, South America, and Japan.

A Topsy Turvy Year in Review:A Topsy Turvy Year in Review: (2009 Facts and Figures)(2009 Facts and Figures)

The number of forced turnover (in which the CEO is typically removed by the Board) declined region by region

Merger-related turnover was down on an overall basis, but was higher in Europe and the rest of Asia on a percentage basis

Both forced and merger-related successions were highest in Europe on an absolute and relative basis.

In 2009 convergence and compression factors contributed to a high CEO succession rate of 14.3 percent.

357 new chief executives were appointed among the top 2,500 Public companies.

Planned Successions (those in which the CEO retires or chooses to leave) constituted the bulk of turnover events, particularly in Japan at 84 percent and North America at 71 percent

““Wherever the head goes, the body will soon follow.”Wherever the head goes, the body will soon follow.”““Conversely, if the head is severed, or becomes ineffective, Conversely, if the head is severed, or becomes ineffective, the body is unsustainable and loses vitality.” – Yours Trulythe body is unsustainable and loses vitality.” – Yours Truly

A Topsy Turvy Year in Review:A Topsy Turvy Year in Review: (2009 Facts and Figures)(2009 Facts and Figures)

# of Succession Events in # of Succession Events in 20092009

102 were located in North America (29 percent);

97 in Europe (27 percent);

49 in Japan (14 percent);

79 in the rest of Asia (22 percent);

18 in Africa and the Middle East (5 percent);

And 12 in South America (3 percent).

A Topsy Turvy Year in Review:A Topsy Turvy Year in Review: (2009 Facts and Figures)(2009 Facts and Figures)

Regional Breakdown forRegional Breakdown for

Overall Turnover RatesOverall Turnover Rates

North America declined from 14.8 percent to 12.4 percent

Europe leveled at 15 percent

Japan (experienced the highest regional rates of turnover in both 2008 and 2009) dipped slightly from 16.9 percent to 16.4 percent

The rest of Asia increased from 13.0 percent to 15.3 percent [Asia is increasingly dominated by companies headquartered in China. In 2000 both China and Hong Kong accounted for 38 of them (1.5 percent) but rose to 220 (8.8 percent) in 2009]

Convergence and Convergence and CompressionCompression

DefinedDefined

ConvergenceConvergence

“The blurring of traditional boundaries puts a premium on creativity and constant vigilance. The corporate ecosystem of the 21st century is and will continue be characterized by such a blurring

of once distinct boundaries: between public and private, foreign and domestic, insider and outsider, friend and foe. Corporations are freer to pursue opportunities to make profits wherever

they can be found in the world and to exploit them according to the requirements of circumstance, not the blind dictates of tradition. The growing fluidity of vital business

relationships will require constant vigilance and improvisation by all who are concerned.” – Chi-Chi-Wei Huang, 2008 Hastings College of Law, Hastings International and Comparative Law Review Wei Huang, 2008 Hastings College of Law, Hastings International and Comparative Law Review

The harmonization of CEO turnovers rates suggests that The harmonization of CEO turnovers rates suggests that global governance norms are emerging and the following global governance norms are emerging and the following

are some noteworthy characteristics:are some noteworthy characteristics:

A separate and overseeing chairman A trend toward appointing insiders (for good reason)

Experience and stability in turbulent times

CONVERGENCECONVERGENCE

Tendency for improved performance by CEO insiders produce regionally market-adjusted shareholders average returns of 2.5 percent in seven of the last 10 years; compared to an average of 1.8 percent by outsider-generated returns for the same period.

As for tenure CEO insiders last nearly two years longer than outsiders (7.9 years versus 6.0)

Outsiders are most likely to be forced out of office than insiders

Experience and stability in Experience and stability in turbulent timesturbulent times

Planned Successions have been increasing for the past three years on a global basis

Percentage of outgoing CEOs with prior CEO experience in a public company has more than doubled over the past 10 years

A separate and overseeingA separate and overseeing

chairmanchairman Around 2000, roughly half of

the North American and European CEOs entering office were named chairman and CEO.

In 2009 the number dwindled to 16.5 percent in North America and 7.1 percent in Europe

A trend toward appointing A trend toward appointing insiders (good reason)insiders (good reason)

Four out of five times, boards around the world choose insider candidates when selecting a CEO, a ratio consistent for 10 years

Average CEO departures over 10-year span who were insiders occurred 73 percent of the time in Europe and 72 percent in the rest of Asia, compared with 80 percent in north America and 96 percent in Japan

CONVERGENCECONVERGENCE(Dual Role Declension and Succession Model)(Dual Role Declension and Succession Model)

Three Types of Staffing Three Types of Staffing Policies in International Policies in International

Business Which Could AffectBusiness Which Could Affect Hiring Practices and Hiring Practices and

Turnover Rates:Turnover Rates:

• The Ethnocentric Approach – The Ethnocentric Approach – A staffing policy in which all key management positions are filled

by parent-country nationals.

• The Polycentric Approach -The Polycentric Approach - A staffing policy under which the firm

recruits host-country nationalsto manage subsidiaries in their

own country, while parent-country nationals occupy key positions at

corporate headquarters.

• Geocentric Staffing Policy -Geocentric Staffing Policy - A staffingpolicy under which the firm seeks thebest people for key jobs throughout

the company, regardless of nationality.

CONVERGENCECONVERGENCE(Dual Role Declension and Succession Model)(Dual Role Declension and Succession Model)

Insider candidates are naturally Insider candidates are naturally more knowledgeable about the more knowledgeable about the

company and the challenges and company and the challenges and opportunities it confronts. They opportunities it confronts. They also tend to perform better and also tend to perform better and

last longer.last longer.

[However] To be sure, insiders lack [However] To be sure, insiders lack the perspective that outsiders can the perspective that outsiders can bring. But the same relationships bring. But the same relationships that enable trust, built over years, that enable trust, built over years,

can also resist change.can also resist change.““Coming in from outside has some Coming in from outside has some

benefits,” notes Jan Lång, president benefits,” notes Jan Lång, president and CEO of Ahlstrom, a Finnish and CEO of Ahlstrom, a Finnish

manufacturer of high-performance manufacturer of high-performance specialty papers and fiber specialty papers and fiber

composites. “It is easier to ask the composites. “It is easier to ask the challenging questions and not challenging questions and not

conform to conventional wisdom.”conform to conventional wisdom.”

COMPRESSIONCOMPRESSION

“Early in the 20th century Hegel seemed to have got it right a hundred years earlier. History seemed to have culminated with the advent of the European nation-state and the nation-state seemed to be the

highest form of governance, accepted as representing the fundamental essence of Western civilization. Now a new end of history has appeared. This time, however, it is one in which the globe substitutes for

the state…Capital now moves around the world at the press of a button, goods can be shipped over great distances at relatively low cost because of containerization and other innovations, cultural icons

represented by such products as blue jeans and Coke bottles are recognizable the world over, and Stealth technology undermines the ability of territorial military power to police its air space. ” - John A. John A.

Agnew, Professor and Chair of Geography, University of California, Los AngelesAgnew, Professor and Chair of Geography, University of California, Los Angeles

The rise of the CEO-only roleThe rise of the CEO-only role Less than 12 percent of

incoming CEOs in 2009 were awarded the chairman title, versus 48 percent as recently as 2002

The poor performance realityThe poor performance reality CEOs forced from office have

significantly underperformed those who leave on their own terms

The short time to develop and The short time to develop and implement an agendaimplement an agenda

Although tenures of 10 to 15 years were not unusual in the latter half of the 20th Century, the global mean tenure of departing CEOs has dropped from 8.1 years to 6.3 years during the past decade

The Evolving Role of the CEO:The Evolving Role of the CEO:(A virtual 10-year study guide from a compilation of various interviews (A virtual 10-year study guide from a compilation of various interviews

from a select international body of Chief Executives Officers)from a select international body of Chief Executives Officers)

1. Do Only What a CEO Can DoDo Only What a CEO Can Do - Shape the company’s definition of success - Break the frame - Reset expectations - Integrate the parts with the whole

2. Engage with the Board as aEngage with the Board as a Strategic PartnerStrategic Partner - Provide structure and processes - Build on the board’s expertise

3. Find the Right Pace ChangeFind the Right Pace Change

4. Get the Culture Working with Get the Culture Working with YouYou - Build on peer connections - Leverage emotional power

Cardinal Health, Inc.Cardinal Health, Inc. Net Servicos de Net Servicos de Comunicacao SAComunicacao SA Banco Bradesco SABanco Bradesco SA

Ahlstrom CorporationAhlstrom Corporation Walgreen CompanyWalgreen Company BT Group PLCBT Group PLC

Golden LivingGolden Living Klabin SAKlabin SA BRF Brasil Foods SABRF Brasil Foods SA

Neste Oil OyjNeste Oil Oyj Nomura Holdings, Inc.Nomura Holdings, Inc. Redecard SARedecard SA

Caterpillar, Inc.Caterpillar, Inc. Roche GroupRoche Group

The Evolving Role of the CEO:The Evolving Role of the CEO:(Churn Rate Trends Among Industries)(Churn Rate Trends Among Industries)

““I think my job is to set the agenda, find the right people, and ensure that change happens. Only the CEO can do I think my job is to set the agenda, find the right people, and ensure that change happens. Only the CEO can do that.” - that.” - Ian Livingston (BT)Ian Livingston (BT)

“…“…team and I selected six keywords to guide the changes we wanted to implement…which included trust and team and I selected six keywords to guide the changes we wanted to implement…which included trust and colegiado [collegiality] — also reflected the most important aspects of our existing corporate culture…”colegiado [collegiality] — also reflected the most important aspects of our existing corporate culture…”- - Luiz Carlos Trabuco Cappi (Banco Bradesco)Luiz Carlos Trabuco Cappi (Banco Bradesco)

““If you don’t come in with the notion that your frame might need to be broken, you’re not doing your job. You If you don’t come in with the notion that your frame might need to be broken, you’re not doing your job. You have to ask yourself, “…can bringing a fresh set of eyes to this model enable me to do that?” have to ask yourself, “…can bringing a fresh set of eyes to this model enable me to do that?” - - George George Barrett (Cardinal Health)Barrett (Cardinal Health)

““Be transparent when you can, and be very open and sincere when you cannot be transparent — explicitly say Be transparent when you can, and be very open and sincere when you cannot be transparent — explicitly say you cannot talk about that topic and why, rather than making up an answer.”you cannot talk about that topic and why, rather than making up an answer.” - - Roberto Medeiros Roberto Medeiros (Redecard)(Redecard)

““Since we acquired the operations of Lehman Brothers in Asia-Pacific and EMEA [Europe, Middle East, and Since we acquired the operations of Lehman Brothers in Asia-Pacific and EMEA [Europe, Middle East, and Africa] in 2008, much of my time has been spent communicating with and motivating our senior managers Africa] in 2008, much of my time has been spent communicating with and motivating our senior managers around the world. It was a cross-border and cross-cultural integration. Managing a global business is not around the world. It was a cross-border and cross-cultural integration. Managing a global business is not about enforcing historical Nomura standards or pursuing the Japanese way; it’s about doing what is most about enforcing historical Nomura standards or pursuing the Japanese way; it’s about doing what is most effective in the simplest and easiest way.”effective in the simplest and easiest way.” - - Kenichi Watanabe (Nomura)Kenichi Watanabe (Nomura)

The Evolving Role of the CEO:The Evolving Role of the CEO:(Churn Rate Trends Among Industries)(Churn Rate Trends Among Industries)

““The board provides me with guidance and advice. I can’t imagine not having a positive relationship with the board The board provides me with guidance and advice. I can’t imagine not having a positive relationship with the board — not being able to call one of them up and say, ‘Hey, here’s what I’m thinking. What do you think?’”— not being able to call one of them up and say, ‘Hey, here’s what I’m thinking. What do you think?’” - - Greg Greg Wasson (Walgreens)Wasson (Walgreens)

““The changes we have undergone have been very substantial; they would not have been possible without the The changes we have undergone have been very substantial; they would not have been possible without the guidance and unwavering support of the board. The board is also incredibly important as a sounding board. guidance and unwavering support of the board. The board is also incredibly important as a sounding board. Without a fully trust-based relationship with them, it simply wouldn’t work.” Without a fully trust-based relationship with them, it simply wouldn’t work.” - - Matti Lievonen (Neste Oil)Matti Lievonen (Neste Oil)

““[Julius Caesar said,] “Go slow to go fast.” Caesar wanted to attack the enemy on the other side of a river. And he [Julius Caesar said,] “Go slow to go fast.” Caesar wanted to attack the enemy on the other side of a river. And he asked his engineers to build the bridge slowly so he could cross the river quickly. You want to get certain asked his engineers to build the bridge slowly so he could cross the river quickly. You want to get certain things right. And then, you’ll be able to move a lot more quickly.” things right. And then, you’ll be able to move a lot more quickly.” - - Neil Kurtz (Golden Living)Neil Kurtz (Golden Living)

““Culture is very important; indeed, the softer questions have risen in importance. We spend lots of time assessing Culture is very important; indeed, the softer questions have risen in importance. We spend lots of time assessing who we are and how we act.” who we are and how we act.” - - Jan Lång (Ahlstrom)Jan Lång (Ahlstrom)

““Culture is an absolutely ingrained, intertwined part of strategy. You can have the greatest strategy in the world Culture is an absolutely ingrained, intertwined part of strategy. You can have the greatest strategy in the world and not be able to execute it because of poor culture. On the other hand, you can have the worst strategy in and not be able to execute it because of poor culture. On the other hand, you can have the worst strategy in the world that a good culture will overcome.” the world that a good culture will overcome.” - - Doug Oberhelman (Caterpillar)Doug Oberhelman (Caterpillar)