CEO Appointments Are In: Gender and Experience Diversity in the C-Suite
Check out the findings from this latest study on how changing expectations from CEOs have affected their appointment over the last few years.
As the business, societal, and economic landscape changes, stakeholders have higher expectations from CEOs. As these expectations have increased, how has it affected the appointment of CEOs over the last few years? And what has changed regarding the diversity and experience of these new CEOs? To answer these and more such questions, Heidrick & Struggles recently conducted a study. Check out the findings here.
For almost three years, companies worldwide have experienced multiple shocks, first in the form of the pandemic, then the Great Resignation, and now an economic crisis. And a few minor incidents have ensured companies do not heave a sigh of relief. As people increasingly lose confidence in their governments, companies and top executives like CEOs are expected to step in and speak about social issues and even sometimes resolve them.
As a CEO’s role becomes increasingly complex and needs more resilience, it may become less appealing even for experienced executives. So, what has been the state of CEO appointments over the last few years? What are the new CEOs bringing to the table? And what backgrounds are these CEOs coming from? To answer these and more such questions, Heidrick & Struggles recently conducted a study.
Rate of CEO Appointments Has Been Relatively Steady
Overall, the CEO appointment rate was relatively steady between July 1, 2021, and Jun 30, 2022 (140 appointments) compared to the previous year (145 appointments). These numbers are higher than in pre-pandemic years, following a notable slowdown in 2020. Further, there are notable differences between countries, with many showing a large slowdown.
See more: CEO Appointments Saw Increased Diversity in 2021 Than Last Year: Heidrick & Struggles
More CEOs Were Appointed Internally
As volatility and uncertainty levels grow, many companies and boards are looking to appoint people they already know. This suggests more reliance on and confidence in leadership development to minimize uncertainty.
There are, however, noteworthy differences among various regions regarding the kind of appointment. In North America, 78% of CEOs were hired internally. On the other hand, Middle Eastern and African organizations relied lesser on their own talent pool, as they appointed 56% and 54% of their CEOs internally, respectively.
CEOs Are Being Appointed From Various Backgrounds, and for the First Time
As expectations from the CEO, many organizations are changing the criteria for the experiences and backgrounds of the new CEOs. This is seen even when the boards identify candidates from their own groups. For example, the CEOs hired in the last year had a higher share of people who became CEOs for the first time than the groups from 2021 and 2020.
First-time CEOs over the last three years
Source: Route to the Top 2022
The new appointees’ backgrounds were found to be sufficiently different from those of the earlier ones that the balance of experience for all CEOs shifted. The new appointees bring both diverse C-suite backgrounds and experiences that may not necessarily include C-suite; instead, they may be a regional leader, head of the division, general manager, and executive vice president.
Type of prior C-suite experience, 2020-2022 (%)
Source: Route to the Top 2022
There Are Small but Steady Gains for Gender Diversity and Fresh Perspectives
A key challenge for companies when selecting CEOs is that more stakeholders demand influence, access, and wider representation in leadership teams. According to the study, there has been slow yet steady progress in women reaching the top position, the diversity CEOs of other nationalities bring, and those who have cross-sector experience.
About 13% of CEOs hired from July 1, 2021, to June 30, 2022, were women. This was compared to 9% in 2020 and 11% in 2021. Similarly, 34% of CEOs were non-nationals compared to 30% in 2021 and 28% in 2020.
It can also be noted that women CEOs’ backgrounds are similar to those of CEOs who are men, besides women more often having previous experience on their boards and fewer times having C-suite experience. The similarities mean women and men are being increasingly assessed on the same criteria for the CEO’s position. It may also indicate the maturing of the female talent pool or the boards being less prone to reduce perceived risks by expecting more qualifications from women.
All that said, there are again notable differences across regions in these areas. For example, African markets are leading in gender balance. On the other hand, Middle Eastern and Latin markets are trailing.
There Have Been Five Major Points of Entry This Year
The CEOs that were appointed this year can be classified into five groups based on the level at which they joined the company. These groups bring various experiences and expertise with them. The five groups are straight to the CEO, founder, other senior leader, long-tenured, and direct report to the CEO.
A large percentage of internal hiring suggests that companies are increasingly considering their internal succession planning. At the outset, it looks like many new CEOs ascended through the ranks and developed into leaders. However, this assumption is not entirely correct. According to the study, excluding founders, just 18% of CEOs are long-tenured. This means early development for many CEOs happened in other organizations before they were developed into a senior leader in their present company.
Looking at gender diversity, the cohort of executives directly appointed as CEOs has the largest percentage of women (10%). This indicates that many organizations still struggle to develop gender-diverse talent pools.
There have also been different succession patterns for different groups. For instance, while 38% of people appointed directly to the role were CEOs earlier, the head of the division was a more regular route for internal appointments.
Many companies directly bring an external CEO or hire a person as a CEO’s direct report as part of succession planning. But the study suggests they can take other approaches leading to more successful outcomes. For instance, on one of the measurements of success in the long term (tenure as CEO), CEOs onboarded into the organization two levels below had the longest tenure than other CEOs, with the exception of founders. On the other hand, CEOs spending a significant percentage of their careers in their organizations had the shortest tenures.
See more: CHROs Are More Qualified To Become CEOs But Don’t Become One: Why?
Looking Forward
CEOs today need to be prepared for everything, from empowering employees and navigating stakeholders’ changing expectations to addressing crises. There are a few but a growing percentage of boards that view CEO succession through the perspective of strategy and scenario planning. By taking this approach, boards give themselves a better chance of success. In such a context, understanding the various characteristics and paths to this role for executives spending different tenures at different stages in the organization gives another lens for boards to identify the options.
Further, as most CEOs are hired internally, boards should focus on leadership development to shape and retain leaders. However, very few executives think their company is world-class at placing people at the top. Further, very few consider the company’s succession planning efforts and executive development programs to be connected. This means organizations have much to do in integrating these efforts. Integration should also extend to the company board’s efforts in defining CEO roles for future scenarios and ensuring the organization has the right processes to develop the essential capabilities.
Integration should begin by driving succession planning further down into the company. Boards diving to the executive pool at least two levels lower than the C-suite can develop a bigger internal cohort of potential leaders. A clear set of career paths can ensure that potential candidates stay motivated to remain with the organization.
If boards bring a person directly into the CEO’s position, they should focus on onboarding them effectively so that they learn how the company works quickly and build teams to complement their capabilities and expertise.
Ultimately, boards can leverage the findings from the study to recognize the advantages and limitations of the different routes to the top position as they evaluate their options.
What things should company boards should keep in mind during CEO succession planning? Let us know on Facebook, Twitter, and LinkedIn.
Image source: Shutterstock
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