Companies looking outside for CEOs.

Author:Heffes, Ellen M.

In 2012, 27.1 percent of S&P 500 companies facing a CEO succession hired an outsider for the top job--that rate confirms an upward trend recorded since the 1970s, when less than 10 percent of CEO hires were outsiders; it is much higher than the 19 percent reported in 2011.

This is according to CEO Succession Practices: 2013 Edition, a new report by The Conference Board. The report, released annually, documents CEO turnover events among S&P 500 companies, based on findings from a survey of general counsel and corporate secretaries at more than 330 U.S. public companies.

"Our finding on outside hires for the CEO position is quite interesting as it may suggest that there is a need to continue to strengthen companies' leadership development practices," says Matteo Tonello, managing director of corporate leadership at The Conference Board and coauthor of the report.

"The heated pay-for-performance debate of the last few years has induced boards of directors to increase the rigor of the CEO selection process. The growing percentage of outsiders chosen as new CEOs may show that directors don't always like what they find within the companies' rank," he adds.

One noteworthy twist on the decision to hire external talent, explains Jason Schloetzer, a report coauthor and assistant professor at the McDonough School of Business at Georgetown University, relates to the selection of a director from the company's own board as CEO. "The director-turned-CEO succession model provides companies with a chief executive who is familiar with corporate strategy and key stakeholders, thereby reducing leadership transition risk."

Among the other key findings:

* Despite steady average CEO succession rates, dismissals hit a 10-year high in 2012. Fifty-three CEOs in the S&P 500 left their post in 2012, or 10.9 percent, which is consistent with the average number of annual succession announcements from 2000 through 2011.

The rate of CEO dismissals varies widely across the 2000-2012 period, ranging from 40 percent in 2002 to 13.2 percent in 2005. In 2012, 31.4 percent of all successions were nonvoluntary departures, the highest rate since 2003.

* Companies in the services industries experienced higher than average CEO succession rates. The...

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