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More than half of the UK’s biggest listed companies chose external candidates as their new chief executive, indicating that insufficient succession planning has left them exposed in times of turmoil or sudden change.
Analysis by 25×25, a not-for-profit organisation backed by businesses including Barclays, BP and NatWest, showed that 52 per cent of FTSE 100 CEO appointments in the year to the end of March and 62 per cent for the FTSE 250 came from outside of their own organisations.
That is significantly higher than peer markets such as the S&P 500 in the US and Germany’s Dax, where just 27 per cent and 23 per cent of companies that appointed new bosses plumped for external candidates, respectively.
A survey of UK board members by 25×25 suggested that companies turned to external candidates because they lacked leaders internally who could manage a period of sudden upheaval, or the need to reposition the organisation for dealmaking and growth.
The 25×25 initiative, which was set up to boost the number of female CEOs in the FTSE 100, said failures in succession planning could present a risk to the broader economy because relying on finding outsiders “at the highest level of risk and remuneration” was unsustainable.
“Not enough forward-looking analysis is being done and much of it is based on what the company has done in the past,” said Tara Cemlyn Jones, chief executive of 25×25, adding that having to look externally for a new leader could be risky and expensive for companies.
The majority of FTSE 350 bosses were themselves “operators” focused on operational matters such as restructuring or reducing costs, and tended to groom people with similar qualities, according to the report.
This meant boards were left to look externally if a sudden need for a new leader or strategy emerged.
The report also suggests that shorter CEO tenure in the UK might be to blame for giving companies less time to develop successors, with UK bosses tending to leave their posts after five years. That compared with 7.9 years for S&P 500 companies and 6.2 years for those in the Dax 40.
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Female chief executives had an even shorter tenure of 4.1 years compared to 5.2 years for the S&P 500, according to 25×25, which Cemlyn Jones said was skewed by the relatively small number in the FTSE 100.
Cemlyn Jones said the “fast-changing landscape” placed even more pressure on boards to have ready and effective CEO succession plans.
The analysis by 25×25 also found that companies were more likely to pick internal candidates when their boards took responsibility for finding new bosses rather than solely relying on external recruiting firms.