strategy+business

FORTHCOMING IN ISSUE 71 SUMMER 2013

BY KEN FAVARO, PER-OLA KARLSSON,

AND GARY L. NEILSON

PREPRINT 00184

THE 2012 GLOBAL CHIEF EXECUTIVE STUDY

Portrait of the Incoming ClassThe newest CEOs have neither the diversity nor the global backgrounds that you might expect.

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For the most part, they are familiar faces. The ma-jority of them were promoted from within the company they now run. Less than half of the new chief executives have spent any time at all working outside their com-pany’s home region. And almost all of them are middle-aged men.

This snapshot of the 2012 incoming class of chief executives puts to rest, at least for this year, the notion that the CEO candidate most likely to be hired is the one with the highest level of global diversity. The data also offers an indication of growing leadership stabil-ity at the top of large companies, and our conversations with CEOs have frequently confi rmed that point of view.

The most notable characteristic of the 2012 class members is their collection of resumes. Of the 300 new

CEOs at the world’s largest 2,500 companies, about 30 percent came from outside the companies that hired them. This is a signifi cant increase (45 percent) over the level of the previous three years, for which an average of 20 percent were outsiders. Interestingly, the entire in-crease is attributable to companies where the transition to a new CEO was planned, not forced (see Exhibit 1, page 3). This trend toward outsiders seems a bit para-doxical in light of another fi nding from our study: As in the past, insider CEOs typically lead their companies to better fi nancial returns than do outsiders.

Just because a larger portion of 2012’s class of CEOs come from outside the company, however, does not mean that they bring a different regional perspec-tive. Fully 81 percent of incoming chief executives, Ill

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PORTRAIT OF THE INCOMING CLASS

THE NEWEST CEOS have neither the diversity nor the global backgrounds that you might expect.

by Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson

CLASS

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both insiders and outsiders, are natives of the country in which the companies hiring them are headquartered (see Exhibit 2). As you might expect, that number var-ies depending on geography. For Chinese companies in 2012, all incoming CEOs came from China. For Japa-nese companies, they all came from Japan. For western European companies, just 58 percent of the new CEOs in 2012 came from the country where their companies are based. Another 33 percent came from another Euro-pean country.

A similar geographic insularity is indicated by CEO work experience. Less than half of incoming CEOs have ever worked in regions outside where their companies are headquartered, a proportion that declines to less

than 20 percent in both China and Japan (see Exhibit 3). At companies in the U.S. and Canada, the propor-tion of new CEOs with global experience was right at the global average, whereas western Europe had the highest proportion, at 60 percent. Given the critical im-portance of taking a global perspective on business in the 21st century, these numbers seem surprising. One cause may be the increasing levels of connectedness through global travel and telecommunications, which make it possible to be a global CEO without having to work around the world or live in more than one coun-try. In addition, at the C-suite level, the common “lan-guage” of business—the mutual understanding of en-terprise strategy and management—is always prevalent,

Ken Favaro ken.favaro@booz.com is a senior partner with Booz & Company based in New York. He leads the firm’s work in en-terprise strategy and finance.

Per-Ola Karlsson per-ola.karlsson@booz.com is a senior partner with Booz & Company based in Stock-holm. He serves clients across Europe and the Middle East on issues related to organization, change, and leadership.

Gary L. Neilson gary.neilson@booz.com is a senior partner with Booz & Company based in Chicago. He focuses on operating models and organizational transformation.

Also contributing to this article were Booz & Company senior manager Josselyn Simpson and specialist Jane Kim, and s+b contributing editor Edward H. Baker.

Exhibit 1: More Outsiders

Insider

Outsider

Incoming CEOs inplanned successions

2012

70%

30%

2009–11

82%

18%

The proportion of new CEOs hired from inside dropped in 2012, because of a large increase of outsider CEOs in planned successions.

Source: Booz & Company

U.S./Canada

WesternEurope

Japan Other China Brazil,Russia, India

Other

MATURE ECONOMIES EMERGING ECONOMIES

Exhibit 2: Nationality and HQ LocationNew CEOs around the world are most often citizens of the country their company headquarters are in—and in Japan and China, they are all citizens of the country where they work.

Same CountryDifferent Country, Same World RegionDifferent Country, Different World Region

Nationality of incoming 2012 CEOs and location of company’s headquarters

100%

2%

100% 85% 89%

4% 4%

84%

9%

7%

58%

33%

9%

74%

24%11% 7%

Source: Booz & Company

2%

GLOBAL

81%

9%

10%

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U.S./Canada

WesternEurope

Japan Other China Brazil,Russia, India

Other

MATURE ECONOMIES EMERGING ECONOMIES

Exhibit 3: Global ExperienceOnly 45 percent of the incoming CEOs in 2012 had experience working in a region other than that of their company’s headquarters.

Incoming 2012 CEOs have had experience working in a world regionother than where company is headquartered

55%

45%

40%

60%

83%

17%

44%

56%

85%

15%

62%

38%

53%

47%

GLOBAL

45%

55%

YES

NO

Source: Booz & Company

fostering communication even when executives speak different languages.

The way that companies bring their new CEOs on board has changed signifi cantly over the years. In 2012, 29 percent of the companies in a planned chief executive transition followed an apprenticeship model, a model in which the outgoing CEO remains or becomes chairman and thus can help “apprentice” the incoming CEO. Of the companies that chose this model, 85 per-cent chose an insider as CEO, far higher than the num-ber that chose outsiders. The data suggests that these companies are seeking continuity through their chief executive transition.

The variation among companies from different re-gions choosing the apprenticeship model is noteworthy. In Japan, in keeping with the country’s tight-knit ways, and where 80 percent of turnover events in 2012 were

planned, 69 percent of new CEOs saw their predecessor stay on as chairman. By comparison, just 15 percent of new CEOs at companies in Europe were mentored by the previous CEO.

By the same token, the percentage of companies ap-pointing their new leader as both chairman and chief executive stood as high as 48 percent 10 years ago. Since then, however, the proportion has declined signifi cant-ly, leveling off at around 12 percent since 2009. As we have observed in past studies, the willingness to concen-trate power at the top appears to be more prevalent in North America. Fully 20 percent of new CEOs at com-panies in North America were also appointed chairman in 2012, a signifi cantly higher proportion than in any other region. In Japan, by contrast, no new CEO also held the chairmanship.

How Leaders LeadDespite their widely varying backgrounds, nationalities, and career paths, virtually all new chief executives we have spoken to over the years agree on one thing: This job is different from all other executive posts. The sense of responsibility increases by an order of magnitude, and the decisions carry much more weight. Prepara-tion is key, but not every new CEO is given that luxury. In any case, whether or not the succession is planned, the new CEOs must lead—moving quickly to gather together the best team possible, making clear to all stakeholders his or her vision for the company’s future, and serving as a model for how he or she expects every-one to behave. +

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The willingness to concentrate power at the top appears to be more prevalent in North America.

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© 2013 Booz & Company Inc.

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