David F. Larcker and Brian TayanCorporate Governance Research Initiative

Stanford Graduate School of Business

CEO SUCCESSIONDATA SPOTLIGHT

LABOR POOL OF CEO TALENT

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)

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

CEO TURNOVER RATE

The Conference Board (2016)

Sample includes S&P 500 companies.

Approximately 10% of CEOs turn over each year.

DEPARTING CEO TENURE

The Conference Board (2016)

Sample includes S&P 500 companies.

Executives generally serve as CEO for 9 years before leaving.

CEO TURNOVER RATES BY REASON

Strategy& (2014)

Sample includes 2,500 largest publicly traded companies globally.

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

OUTSIDE HIRES AS A PERCENTAGE OF NEW CEOS

Murphy and Zábojník (2007)

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

1970-1979Average: 15.0%

1980-1989Average: 17.1%

1990-1999Average: 26.0%

2000-2005Average: 32.7%

Companies typically promote an internal executive to become CEO. However, over time the number of externally recruited CEOs has increased.

COMPANIES THAT DEVELOP THE MOST FUTURE CEOS

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 Macy’s 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

Cai, Sevilir, and Yang (2015)

Shows the number of executives with managerial-level experience that subsequently became CEO at other corporations during the sample period 1992 to 2010.

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

TENURE OF INSIDE CEOS PRIOR TO PROMOTION

The Conference Board (2016)

Sample includes S&P 500 companies. Tenure is number of years at company prior to becoming CEO.

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

TOTAL COMPENSATION FOR NEWLY HIRED CEOS

Equilar (2013)

Sample includes S&P 1500 companies. Median compensation.

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

AGE OF INCOMING CEOS

The Conference Board (2016)

Sample includes S&P 500 companies.

Newly hired CEOs are 53 years old, on average….

FEMALE INCOMING CEOS

The Conference Board (2016)

Sample includes S&P 500 companies.

… They are also overwhelmingly male.

COGNITIVE ABILITY OF CEOS RELATIVE TO POPULATION

Adams, Keloharju, and Knüpfer (2014)

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.

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

NON-COGNITIVE ABILITY OF CEOS RELATIVE TO POPULATION

Adams, Keloharju, and Knüpfer (2014)

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.

… and psychological and emotional stability.

HEIGHT OF CEO

Adams, Keloharju, and Knüpfer (2014)

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”.

CEOs are also taller.

SUCCESSION WINNERS AND LOSERS

Larcker, Miles, and Tayan (2016)

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.

CEO Transitions121

Chosen as successor121

Passed over for CEO100

Stayed at company26%

Left company74%

Became CEO30%

Below CEO level41%

Retired30%

-22%-2%3-year stock price

relative to S&P 500

Executives that “lose” the succession race generally leave the company. They often do not perform as well as succession “winners.”

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 Ján Zábojník. 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.

Renée Adams, Matt Keloharju, and Samuli Knüpfer. Match Made at Birth? What Traits of a Million Swedes Tell Us about CEOs. SocialScience 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.

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