Australian CEOs given less time to shine than global counterparts
Australian CEOs given less time to shine than global counterparts
Nov 24, 2004: The turnover rate of CEOs in Australia is significantly higher than the global average, with the average tenure of local CEOs only around half as long as their global peers.
The revelation of the revolving door policy emerged in a study by international management consulting firm Booz Allen Hamilton and the Business Council of Australia.
The study found that overall CEO turnover in Australia – for reasons of performance, merger activity or normal transition – is still significantly higher than the global average in 2003. In 2003, 14.2 percent of Australian ASX 200 companies recorded a turnover event, compared to 9.5 percent for the global average.
It found average CEO tenure in Australia remains lower than the global average, while the trend for Boards to appoint replacement CEOs from outside the company is accelerating. ‘Outsiders’ last year made up 57 percent of new CEO appointments in Australia compared to 40 percent in 2002.
Commenting on the Australian findings, Booz Allen Hamilton director, Marion Skulley, said: “This year’s study shows Australian companies bucking international trends in several important respects, and there are a number of salient points Boards should take away from it.
“While the overall CEO turnover rate in Australia declined, the number of CEOs departing is still relatively high compared to the global average and this has been consistently so over the last six years,” said Skulley.
“Also, the trend toward outsider CEO appointments in Australia is continuing, contrary to the international experience. These outsiders performed better on average than insider CEOs, again in contrast to the situation overseas, potentially reflecting both the smaller talent pool in Australia and the lower priority given to succession planning.
“Clearly, proven CEOs are in short supply and high demand. In our experience working with the CEOs and Boards of major Australian corporations, one of the critical issues on the table is succession planning and how to groom the next generation of leaders from within."
BCA president, Hugh Morgan, said the research underlined the need for Boards and companies to focus on strategies to overcome structural barriers in Australia that otherwise limited CEO tenure.
"These barriers include a smaller domestic economy offering fewer growth opportunities other than mergers and acquisitions, proximity to riskier Asian markets and a higher proportion of service-oriented industries undergoing rapid structural reform,” he said.
Morgan said shorter tenure and heightened expectations of performance, relative to other markets, remained a concern for the BCA and its member CEOs.
“This is particularly so, given the overall strong performance by Australia's corporate sector and the prospect that Australia is running down its executive management resources faster than is desirable.”
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