TheCorporateCounsel.net

This HLS blog details recent CEO succession trends among the Russell 3000 and S&P 500 – with data & analysis from The Conference Board, Heidrick & Struggles, and ESGAUGE. Here’s one trend that jumped out:

The rate of inside promotions to the CEO position in the Russell 3000 increased from the prior years, reaching 73.5 percent of incoming CEOs in 2022—the highest since The Conference Board and ESGAUGE began tracking these statistics. In the S&P 500, the rate of inside promotions is projected at 84.6 percent for 2023, one of the highest ever recorded and higher than the historical average (78.8 percent since 2011). In 2022, Real Estate, Utilities, and Financial companies reported the highest rate of internal promotions to the EO role (93.3 percent, 91.7 percent, and 86 percent, respectively), while Communication Services companies had the highest percentage of outside CEO hires (64.3 percent).

What’s more, companies aren’t just promoting internal executives, they are awarding the golden ticket a few years sooner than has been the case historically:

While a critical source of CEO talent continues to be long-serving executives promoted from within, data suggests that after the pandemic, boards fast-tracked inside promotions to the chief executive post. As of the end of 2022, the average tenure-in-company of internally promoted CEOs was 12 years in the S&P 500 and 10 years in the Russell 3000, lower than the historical averages of 16 years and 11 years, respectively. The share of “seasoned executives”—or those with at least 20 years of company service—was also lower than the historical averages (17.3 percent in the S&P 500, compared to a 32.2 percent 5-year average; and 15.0 percent in the Russell 3000, down from a 17.8 percent historical average).

The blog points out that there’s significant variance across industries but says the data could suggest changing perceptions of leadership. Specifically, boards might be embracing new leadership traits around innovation & adaptability. Lastly, the more rapid ascent of executives makes leadership development even more important. The blog gives these final thoughts:

The decline of tenure-in-company and “seasoned executives” in a year where the overall rate of CEO succession increased may also suggest that companies accelerated their leadership development process to expand their pool of CEO candidates. To help mitigate human capital risks, the entire board should review, at least annually, the leadership development process within their companies and scrutinize internal succession candidate lists.

– Liz Dunshee