Study finds that CEO job security is declining throughout the world

Landmark survey finds forced early departure of chief executive officers today is the rule, not the exception

NEW YORK, NY, Sept. 25, 2002 — As standards for CEO performance increase, chief executive turnover is accelerating in the U.S. and globally, turning the early departure of a company’s leader into “the new normal,” according to a survey of the 2,500 largest publicly traded corporations released today by leading management and technology consulting firm Booz Allen Hamilton.

Globally, the study paints a dramatic picture of growing shareholder impatience and board activism – not just in North America, but particularly in Europe, where the pace of forced CEO departure has greatly accelerated.

The study, which will be published in the July issue of strategy+business magazine, is the first to comprehensively examine the linkages between CEO tenure and corporate performance, comparing CEO turnover in major regions and in specific industry sectors. Among the key findings:

* Turnover of CEOs at major corporations increased by 53% between 1995 and 2001

* During the same period, the number of CEOs departing because of their company’s poor financial performance increased by 130%

* Average tenure as a CEO declined from 9.5 years in 1995 to 7.3 years in 2001

* Turnover among European CEOs is increasing twice as fast as turnover in North America

* European CEOs are more likely to be removed for poor job performance than North American CEOs-34% of the departures in Europe compared with 22% in North America

* CEOs are entering and departing office at a younger age; in the West, the average CEO rises to office before his or her 50th birthday

* CEOs have the longest tenure in the financial services industry, at more than 10 years on average; they are least safe in telecommunications services, where their tenure averages only four years

The frequency of CEO turnover will continue to grow, the Booz Allen study concludes, because of shareholder-value pressures; the demonstrable drop-off in company performance during the second half of CEO tenures; and the growing pool of experienced former CEOs available to run companies.

“We found that the operating margin for CEO survivability is paper thin,” said Charles Lucier, senior vice president, Booz Allen Hamilton. “In some respects, today’s CEOs are like professional athletes – relatively young people with short, well-compensated careers that are terminated once they cease to perform at exceptional levels.”

Lucier also noted that the findings were particularly surprising in Europe. “The United States is usually considered the bastion of capitalist competition based on performance. In fact,” said Lucier, “the study shows that European CEOs are actually more likely to be removed for poor performance than American.”

Key Study Findings

* The CEO “Revolving Door:” The frequency of CEO “succession events,” (e.g., the departure of one CEO and the accession of another) nearly doubled, from 6% of the largest 2,500 global companies per year in 1995 to 11.2% in 2000. Although the number dipped in 2001, the frequency of succession is still more than 50% higher than in 1995.
* In the Asia/Pacific region, the number of transitions were essentially constant from 1995 through 2000.

* Quick Trigger Finger on Failure: The firing of poorly performing CEOs increased 114% from 1995 to 2000. In Europe, performance-related departures accounted for 34% of all successions in 2000 and 2001, well outpacing North America (22%).

* Short Leash for Poor Performers: When CEOs are dismissed for performance issues, their tenure is 5.4 years on average. CEOs terminated for performance reasons last 5.6 years in North America, while their European counterparts actually have a shorter span – 4.8 years on average.

* Youth is Served: CEOs are entering and departing office at younger ages. In North America in 1995, the average starting age of CEOs was 50.4; in 2001 it was 48.8.
* In Europe, the average starting age of CEOs was 52.3 in 1995; 49.4 in 2001
* The exception to the rule is found in Asia, where the average starting age of CEOs was 57.0 in 1995; 60.4 in 2001

* The Stock Market is the Market that Matters: There is a clear connection between a company’s shareholder returns and a CEO’s survival in North America and Europe. The difference between the shareholder returns of companies where the CEO is removed for performance and where the CEO achieves a regular transition is large, significant, and increasing in both North America and Europe
* In Asia/Pacific, “performance” wasn’t about returns to shareholders but rather about the rate of net income growth

* Worse Over Time?: No matter their length of tenure or reason for departure, European and North American CEOs performed better for their shareholders in the first half of their tenures than in the second half. For CEOs whose tenures lasted 0-5 years, the median returns to shareholders relative to a broad index of publicly traded stocks were 2.7 percentage points per year worse than the index for the first half of tenure and 16.7 points worse during the second half. For CEOs whose tenures lasted 5-10 years, the median returns to shareholders normalized to the market index were 3.7% during the first half of their tenures, and dropped to -6% during the second half. For CEOs whose tenures were 10 years or greater, the normalized median returns were 5.9% during the first half of tenure and -0.9% in the second half of tenure.
* Booz Allen theorizes that the performance of CEOs of 5 or more years of tenure will come under increasing scrutiny.

Industry-Specific Findings

* Most CEO Turnovers: The industries that saw the highest rates of CEO turnover were telecommunications services, followed by energy, and information technology. Lowest rates were among materials, utilities, and financial services.

* Average CEO Tenure: CEO tenure is longest in financial services (10.3 years) and energy (10.2 years), and shortest in utilities (7.3 years) and telecommunications services (4.0 years). The four year tenure of CEOs in telecommunications services is less than half the average tenure of CEOs in all industries.

* Average CEO Age at Accession: CEOs in the information technology (45.2 years) and telecommunications services (45.7) are amongst the youngest, whereas CEOs in the materials (53.7 years) and utilities (52.5) sectors are among the oldest. Across industries, the average CEO is 50 years on accession.


Booz Allen studied the 231 CEOs of the world’s 2,500 publicly-traded corporations who left office in 2001, and evaluated both the performance of their companies and the events surrounding their departure. To provide historical context, Booz Allen evaluated and the compared this data to information on CEO departures for 1995, 1998 and 2000.

For purposes of the study, Booz Allen classified each CEO departure as either:

* Merger-driven, in which a CEO’s job was eliminated when the CEO of the other company involved in the merger or acquisition assumed control of the enterprise.

* Performance-related, where the CEO was asked to leave by the Board of Directors or there was significant speculation in the business press that performance was the driver of the change, or where the CEO cited job stress as the reason for his or her resignation

* Regular transition, in which the CEO retired on a long-planned schedule, died in office or left to become the CEO of another company.

About Booz Allen Hamilton

Booz Allen Hamilton has been at the forefront of management consulting for businesses and governments for more than 80 years. Booz Allen combines strategy with technology and insight with action, working with clients to deliver results today that endure tomorrow. With 11,000 employees on six continents, the firm generates annual sales of $2 billion. Booz Allen provides services in strategy, organization, operations, systems, and technology to the world’s leading corporations, government and other public agencies, emerging growth companies, and institutions.

To learn more about the firm, visit the Booz Allen Web site at To learn more about the best ideas in business, visit, the Web site for strategy+business, a quarterly journal sponsored by Booz Allen.


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