December 22, 2009 11:12 pm

Precarious outlook for chief executives’ role

A quarter of companies will lose their chief executives over the next 12 months as shareholders become frustrated with underperformance, according to the world’s biggest headhunter.

Executive turnover has halved to about 10 per cent during the downturn, as companies avoided risk-taking in a difficult climate.

But Korn/Ferry Whitehead Mann predicts that chief executive churn will increase dramatically next year. The headhunter says that about 20 per cent of companies changed chief executives in the years before the recession.

The report comes as headhunters are dealing with a wave of new mandates. Hiring usually slows over Christmas but executive search groups say they are being deluged with requests as companies, particularly in the financial services industry, seek to beef up their management.

Sir David Lees, chairman of the Bank of England and a contributor to the report, said that the wave of movement had been sparked by the need to react to changes in the economic climate. “A number of companies scarred by the recession have had to change their direction for better or worse and that may have prompted calls for a change in leadership.”

But the report also found that less than 8 per cent of companies have succession plans in place, with potentially damaging implications. After a year in which the succession plans of ITV and Marks and Spencer have come under scrutiny, the study suggests that problems in replacing senior staff will become more prevalent.

The average tenure of a chief executive has already shortened to about five years.

Korn/Ferry interviewed 70 chief executives, chairmen and non-executive directors, including Gareth Davis, chief executive of Imperial Tobacco; Andy Duff, chief executive of RWE Npower, and Alan Parker, chief executive of Whitbread.

Asked why some candidates with chief executive potential fail to make the job, the executives cited “arrogance, egocentricity and aggression”. By contrast, the opposite – being overly sensitive or emotional – hardly scored at all as a disadvantage for potential chief executives. Instead, the biggest barriers to success were seen to be indecisiveness and a tendency to micro-manage.

As to whether chief executives are made or born, most thought that it was “a bit of both”. While some raw ingredients were needed, more important was exposure to a range of challenges early in the career.

Anthony Habgood, chairman of Reed Elsevier and Whitbread, said: “A good chief executive often has had a broad range of experiences in his/her career, across functions and geographies, as well of course as having had P&L responsibility over many years.”

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