Companies

Report: CEO turnover rate low

By He Wei (China Daily)
Updated: 2011-07-01 11:32

SHANGHAI - China had the lowest turnover rate for chief executive officers in 2010, according to a report by the consulting firm Booz & Co.

That has helped to lower the rate for the world to 11.6 percent, which is the lowest it has been since 2003, said Andrew Cainey, managing director of the company's China office.

He said the drop may also have come because companies and CEOs have been hunkering down during the recent financial storm.

Since 2004, the rate of CEO turnover has dropped from more than 15 percent to under 12 percent at the 2,500 publicly held companies with the largest market values in the world. China's rate of succession - at just more than 5 percent - is particularly low.

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The past year has seen the departures of several prominent CEOs. Among them has been Mark Hurd, the CEO of Hewlett Packard Co, who resigned in August after being accused of having an improper relationship with a contractor.

"When stock markets and industries perform well, chief executives tend to get the credit," Steve Kaplan, a professor of finance at the University of Chicago's Booth School of Business, told the Wall Street Journal this month. "But when the economy is not doing well, it's much easier to seek a change."

Meanwhile, the largest companies in the world are increasingly establishing themselves in China, India and other emerging economies, the survey found.

More than a quarter of the top 2,500 public companies in the world have their headquarters in emerging economies.

Of them, 895 are in Asian economies (China, Japan and the rest of Asia), while 772 are in North America and 619 in Europe.

China, in particular, has shown stunning growth, being home to 9 percent of the top 2,500 companies and 20 percent of all newcomers to the list.

"This shift in the mix of companies in our global sample is already influencing CEO succession trends, as companies with new governance structures and different growth arcs come to the fore," said Arnold Sun, principal of Booz.

Two reasons can be given for the stability of CEOs in China, Cainey said. The first is that many companies in China are owned by the government, which leads to more patience with CEOs and a longer view than is commonly found in the West, leading to more realistic expectations for incoming CEOs.

Another reason is that a large number of privately owned companies in China have become successful only recently and are still run by the original founders.

In 2010, the Financial Times newspaper selected 21 State-owned companies as members of the Global Fortune 500. Meanwhile, more than 1,700 private enterprises have been listed either domestically or offshore, according to a study conducted by the China Europe International Business School. For China, Cainey said the key to being a successful CEO comes in adapting to the type of company one is a part of, whether it be a holding company that requires minimal oversight or a company needing much more direct control.

He also suggested that Chinese companies consider whether they plan to concentrate on the domestic market or branch out overseas and that they choose the CEO who will suit that plan.

It is not necessarily true that it's best for CEOs to stay in one position for a long time, according to Mark Hall, general manager of the professional division of the human resources consulting firm Kelly Services' China operation.

Hall said CEOs can be both the biggest driver for a company and the biggest barrier. He said there are many cases when reforms within a firm start with the change of its CEO.

Caleb Kao contributed to this story.