High chief exec turnover - is it a good thing?

There's an interesting report out from consultants Booz Allen Hamilton looking at how long CEOs stay in post for. The report says that turnover is at a high, including examples where CEOs are booted for poor performance.

The somewhat bizarre conclusion drawn is that the high turnover shows that governance reform is working, as board respond to shareholder and regulatory intervention to dump underperforming CEOs. I have a few problems with this. First, if more CEOs are getting the boot doesn't that imply that boards aren't picking the right people? Second, it reinforces the myth (in my opinion) of the superstar CEO. Just as I don't believe one individual can ever be responsible for all the success of an organisation, neither can they be responsible for all its ills. Finally, I have a real problem with the implication that these findings prove that a market is at work.

On the other hand the report does say that outside CEO appointments often fail to deliver, particularly of they come from a different industry, or a company with different problems. I think the cortrect reponse here is.... well, duh!

Anyway, where are some headline findings:

Key Study Findings

CEOs are as likely to leave prematurely as to retire normally. Continuing a pattern from 2004, in 2005 nearly half of all CEO departures were due to poor performance or mergers.

“Repeat chiefs” are increasingly common. More than one in eight of the CEOs who left office this year had previously served as leader of another company; increasingly, active CEOs are moving directly from one large company to another.

But “repeat chiefs” perform no better than new, untested CEOs. This pattern has been the same in seven of the eight years Booz Allen has studied. “The challenge of leading an unfamiliar organization evidently more than offsets the benefits of having led a publicly traded company in the past,” said Kocourek.

Outsider CEOs flame, then fizzle. During their first two years in office, CEOs brought in from outside the company produce returns for investors that are nearly four times better than those achieved by insiders. But when the tenure grows longer, insider CEOs tend to do much better. “Companies that hire outsiders should follow a ‘five-year rule,’ seeking a new CEO before performance declines,” said Kocourek.

Hiring outsider CEOs often backfires for troubled companies. Looking back at the careers of the “class of 2005,” those who had been hired from the outside had taken charge of companies with, on average, far worse performance records than those who had been promoted from within. In North America, for example, 29% of troubled companies had hired an outsider in the prior two years, compared with only 6% of companies with positive performance records.

Nonchairman CEOs are now the best performers. Of CEOs who left office in 2005, those who never served as chairman of their companies outperformed those who served in the dual role of chairman and chief. In North America over the last three years, departing nonchairman CEOs had produced shareholder returns three times as high as those of CEO/chairmen.

The former CEO should not remain as chairman. CEOs who serve in the “apprenticeship model,” in which the chairman is their predecessor, generally do poorly. For example, in Europe over the last four years, “apprentice” CEOs produced annual shareholder returns five percentage points lower than the returns achieved by departing CEOs who had the advantage of working with a separate and independent chairman.