A lack of succession planning has led most of the UK’s largest listed companies choosing external candidates as their new chief executive, a trend not seen elsewhere in Europe or in the US.
Failure to set plans for changes in leadership could leave many large companies exposed in times of turmoil or sudden change, according to research by 25×25, a not-for-profit organisation backed by businesses including Barclays, BP and NatWest.
The analysis showed that 52% of FTSE 100 CEO appointments in the year to the end of March and 62% for the FTSE 250 came from outside of their own organisations.
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These figures were significantly higher than comparable markets such as the S&P 500 in the US and Germany’s Dax, where just 27% and 23% of companies that appointed new bosses selected external candidates, respectively.
25×25 has also conducted a survey of UK board members, which revealed that companies turned to external candidates because they did not consider that internal executives would be able to manage a period of sudden upheaval, or a need to reposition the organisation for growth.
There was a wider risk in succession planning failures, according to 25×25, because relying on finding outsiders “at the highest level of risk and remuneration” was unsustainable. This could threaten the economy of the country more broadly, it said.
Tara Cemlyn Jones, chief executive of 25×25, told the Financial Times that having to look externally could be risky and expensive. She added: “Not enough forward-looking analysis is being done and much of it is based on what the company has done in the past.”
Most FTSE 350 bosses were likely to be focused on operational matters such as restructuring or reducing costs, and tended to groom people with similar qualities, according to the report. The report called such bosses “operator CEOs” and stated that the need for an operator CEO versus a transformative CEO was likely to be cyclical. These cycles were becoming shorter, leaving boards to look externally if a sudden need for a new leader or strategy emerged.
UK bosses tending to leave their posts after five years, the study found. This compared with 7.9 years for S&P 500 companies and 6.2 years for those in the Dax 40.
The analysis also found that companies tended to pick internal candidates when their boards took responsibility for finding new bosses rather than solely relying on external recruiting firms.
The 25×25 initiative was set up to boost the number of female CEOs in the FTSE 100.
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