CEO SUCCESSION

DATA SPOTLIGHT

David F. Larcker and Brian Tayan

Corporate Governance Research Initiative
Stanford Graduate School of Business

LABOR POOL OF CEO TALENT

There are approximately 5,000 CEOs of publicly traded companies in the U.S.
CEOs have a diverse set of skills and experiences.
U.S. CEOs
Number of CEOs

> 5,000

Prior to CEO: finance

22%

Average tenure as CEO

8 years

Prior to CEO: operations

20%

%, 0-5 years as CEO

59%

Prior to CEO: marketing

20%

%, 6-10 years as CEO

24%

Prior to CEO: other

38%

%, 11-15 years as CEO

9%

International experience

34%

%, 16+ years as CEO

8%

Military experience

7%

Same company entire career

19%

MBA degree

40%

Spencer Stuart (2007, 2008); The Conference Board (2014)

CEO TURNOVER RATE

Approximately 10% of CEOs turn over each year.

Sample includes S&P 500 companies.

The Conference Board (2016)

DEPARTING CEO TENURE

Executives generally serve as CEO for 9 years before leaving.

Sample includes S&P 500 companies.

The Conference Board (2016)

CEO TURNOVER RATES BY REASON

CEOs leave for a variety of reasons, including health, new job, planned retirement,
forced termination, or loss of job following a takeover.

Sample includes 2,500 largest publicly traded companies globally.

Strategy& (2014)

OUTSIDE HIRES AS A PERCENTAGE OF NEW CEOS

Companies typically promote an internal executive to become CEO.
However, over time the number of externally recruited CEOs has increased.
1970-1979
Average: 15.0%

1980-1989
Average: 17.1%

1990-1999
Average: 26.0%

2000-2005
Average: 32.7%

Sample includes those in Forbes annual surveys 1970-1999, and companies in S&P 500 and S&P MidCap 400 2000-2005.
Murphy and Zbojnk (2007)

COMPANIES THAT DEVELOP THE MOST FUTURE CEOS

A subset of companies develop a large number of executives who
eventually become CEOs at other corporations.
Company

# Future CEOs

Company

# Future CEOs

General Electric

49

General Motors

13

IBM

17

Johnson & Johnson

13

Procter & Gamble

28

Xerox

13

AT&T

21

ExxonMobil

13

Hewlett-Packard

21

Macys

12

PepsiCo

21

American Express

11

Ford Motor

19

Intel

11

Honeywell

19

Kraft Foods

11

Motorola

18

Rockwell Automation

11

Lucent Technologies

14

United Technologies

11

Shows the number of executives with managerial-level experience that subsequently became CEO at other corporations during the
sample period 1992 to 2010.
Cai, Sevilir, and Yang (2015)

TENURE OF INSIDE CEOS PRIOR TO PROMOTION

Internally promoted CEOs have 15 years experience, on average,
prior to becoming CEO.

Sample includes S&P 500 companies. Tenure is number of years at company prior to becoming CEO.
The Conference Board (2016)

TOTAL COMPENSATION FOR NEWLY HIRED CEOS

Internally promoted CEOs earn lower first-year total compensation
than externally recruited CEOs.

Sample includes S&P 1500 companies. Median compensation.

Equilar (2013)

AGE OF INCOMING CEOS

Newly hired CEOs are 53 years old, on average.

Sample includes S&P 500 companies.

The Conference Board (2016)

FEMALE INCOMING CEOS

They are also overwhelmingly male.

Sample includes S&P 500 companies.

The Conference Board (2016)

COGNITIVE ABILITY OF CEOS RELATIVE TO POPULATION

There is some evidence that CEOs have higher-than-average cognitive ability

Sample includes over 1 million males in Sweden. Cognitive ability based on the results of mandatory military enlistment tests administered at age 18.
The test consists of four subtests to measure inductive reasoning, verbal comprehension, spatial ability, and technical comprehension. Results
distributed on a nine-point scale, with 1 representing the group with the lowest test results and 9 representing those with the highest test results. CEOs
divided by asset size of the companies they manage.
Adams, Keloharju, and Knpfer (2014)

NON-COGNITIVE ABILITY OF CEOS RELATIVE TO POPULATION

and psychological and emotional stability.

Sample includes over 1 million males in Sweden. Non-cognitive ability based on the results of mandatory military enlistment tests administered at age
18. The test consists of a psychological interview to measure social maturity, intensity, psychological energy, and emotional stability. Results
distributed on a nine-point scale, with 1 representing the group with the lowest test results and 9 representing those with the highest test results. CEOs
divided by asset size of the companies they manage.
Adams, Keloharju, and Knpfer (2014)

HEIGHT OF CEO
CEOs are also taller.

Sample includes over 1 million males in Sweden. Height measured as part of mandatory military enlistment tests administered at age 18. The midpoint
of the height ranges above in feet and inches are <5 5; 5 6; 5 8; 5 10; 6; 6 2; 6 4; >6 6.
Adams, Keloharju, and Knpfer (2014)

SUCCESSION WINNERS AND LOSERS

Executives that lose the succession race generally leave the company.
They often do not perform as well as succession winners.
CEO Transitions
121

Chosen as successor
121

Passed over for CEO

100

Stayed at company
26%

Became CEO
30%

-2%

3-year stock price

relative to S&P 500

Left company
74%

Below CEO level

41%

-22%

Sample includes CEO transitions at 100 largest U.S. companies 2005 to 2015; stock price performance compares only matched pairs
of CEO successors and the executives from those companies that were passed over and became CEO at another company.
Larcker, Miles, and Tayan (2016)

Retired
30%

BIBLIOGRAPHY
Spencer Stuart. Route to the Top. 2007, 2008.
The Conference Board. CEO Succession Practices. 2014, 2016
Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, 2014 Study of CEOs, Governance, and Success: The Value of Getting CEO
Succession Right, Strategy&. 2014.
Kevin J. Murphy and Jn Zbojnk. Managerial Capital and the Market for CEOs. Social Science Research Network. 2007.
Ye Cai, Merih Sevilir, and Jun Yang. Made in CEO Factories. Social Science Research Network. 2015.
Rene Adams, Matt Keloharju, and Samuli Knpfer. Match Made at Birth? What Traits of a Million Swedes Tell Us about CEOs. Social
Science Research Network. 2014.
Equilar. Paying the New Boss: Compensation Analysis for Newly Hired CEOs. June 2013.
David F. Larcker, Stephen A. Miles, and Brian Tayan. Succession Losers: What Happens to Executives Passed Over for the CEO Job?
Stanford Closer Look Series. October 2016.