When is it time to change the company CEO? The question reflects the tension between minimizing churn and maximizing the effectiveness of an executive for the business. Africa Advisory Group took a look at CEO turnover trends at 50 companies operating across Africa to gauge how they approach this question.
The 50 company CEO turnover analysis includes 20 companies from Nigeria, 10 from Kenya, 10 from South Africa and 10 from North Africa. The companies were selected from Africa Business Magazine’s Top 250 Companies in Africa list, which ranks businesses by market capitalization as of 2014. The 50 companies provide a snapshot of CEO turnover trends across the continent, and don’t represent the entire market. The companies come from the banking, financial services, telecommunications, FMCG and energy sectors. AAG tracked the number of CEO changes at each company over the 10-year period 2005 to 2015.
The analysis found the majority of the companies had two or three CEOs during the 10-year period–20 companies changed their CEO once and 16 companies changed CEOs twice. Eight companies had the same CEO during the past 10 years while two companies went through six CEOs and one company went through five leaders. Four companies had four CEOs between 2005 and 2015.
The vast majority of the 50 companies analyzed went through a process of appointing one to two new CEOs over a 10-year period. While it is interesting to observe the trends, the “right” answer cannot be derived simply by looking at an external benchmark.
Each chief executive transition requires the company to go through a potentially disruptive process. The company’s board needs to identify the right CEO candidate, onboard that CEO into the position, and manage the performance of a distinct individual, who likely has a different style from his or her predecessor.
For companies that experience significantly more CEO changes in a given period, the process of frequently appointing a new CEO can create some drag on the company resources such as time, money and focus. On the flipside, failing to appoint a new CEO in situations where the existing CEO may be underperforming or losing relevance also has negative ramifications on
a business performance.
Ideally, a company should appoint CEOs who come in at a point in their careers and in the company’s maturity when they have the potential to lead the company over a meaningful period of time. CEOs should leave when the company has effectively outgrown them, in terms of their dynamism, skill set, or vision.
When appointing a new CEO, board directors need to consider where the company is trying to go and what the CEO can contribute to achieve a specific set of goals. The board needs to have a clear idea about what the next milestone will be to assess leadership performance and what the leadership team should look like at that point in time. The board needs to be there to provide oversight and to ensure CEO performance is appropriately monitored so that decisions on when to appoint the next CEO are taken at the right time for the company.
Robust and diligent governance of CEO succession planning and selection, internal or external, is critical to ensure the company can maximize the value a CEO creates for the business.
Research and data collection by Devon Maylie and AAG Insight by Taiwo Ajayi.