CEO Transitions Decline in 2023

Spencer Stuart has long tracked CEO turnover among S&P 500 companies to provide a snapshot view of leadership changes at the top of American business. With the S&P 1500 representing about 90 percent of U.S. market capitalization, the firm shares observations that represent most of the public leadership transitions across the country.

March 14, 2024 – In 2023, the number of S&P 1500 transitions declined from 2022 and have not yet returned to pre-pandemic levels, according to findings from Spencer Stuart’s CEO Transitions report. Transitions among the large-cap S&P 500 companies had been on track for a “normal” year of transitions but ultimately were lower than pre-pandemic averages, weighed down by unusually low turnover in the fourth quarter, the study found. In addition, the move toward older CEOs and, among S&P 500 companies, experienced CEOs continued. Across the full S&P 1500, the average incoming CEO age is two years older than in 2022, and almost 20 percent of new S&P 500 CEOs had previously served as public company CEOs.

What’s less evident in the data is the evolution Spencer Stuart saw in how boards are thinking about the qualities and capabilities CEOs need, both today and in the future. How should the profile of CEOs evolve amid dramatic shifts in the scale, scope, pace and interconnectedness of business challenges and the broader and more complex stakeholder demands CEOs are facing?

“In addition to attributes traditionally associated with CEO excellence — such as strategic thinking and the ability to get results — boards are weighing attributes that point to candidates’ ability to stretch and respond to new challenges,” the Spencer Stuart report said. “These include systems thinkers who can make sense of the forces at play for the business, connectors who think more broadly about potential partners and ecosystems to expand opportunities, and agile operators with the skill and courage to act on the implications of these forces, the empathy to connect with diverse stakeholders, and the ability to cultivate and use an ecosystem of information and talent.”

S&P 1500 transitions have not bounced back to pre-pandemic levels, and overall fewer companies appointed new CEOs in 2023. Across the S&P 1500, Spencer Stuart found that 136 companies named new CEOs, a decline from 146 in 2022. After the strongest first quarter of the year in a decade (58 transitions versus 65 in 2013), transitions trailed historic averages the remainder of the year and were particularly soft in the fourth quarter.

Spencer Stuart believes that some CEOs held on to wait for an economic rebound, and many boards pushed succession timelines out to retain a seasoned CEO in the face of continued macroeconomic, social and geopolitical instability. Forty-six S&P 500 companies appointed a new CEO in 2023, down from 56 in 2022 — and fewer than the historically low level of 48 during the pandemic year 2021. CEO transitions among MidCap 400 companies rebounded to 40 in 2023, after hitting a 10-year low of 33 transitions in 2022. Fifty SmallCap 600 companies appointed new CEOs, a decline from 2022.

Spencer Stuart’s research into CEO succession during periods of crisis shows transitions usually rebound around two years after the depth of a crisis as uncertainty wanes and boards feel more confident in returning to longer-term succession plans. That has generally played out among larger companies, but the firm has observed different patterns among mid-cap and small-cap companies.

Relate: Preparing for Shorter CEO Tenures

The study found that the consumer and healthcare industries had the highest CEO turnover in 2023, with 11 percent of CEO roles turning over during the year. The financial services sector had the lowest, with seven percent turnover.

Internal Appointments Declined

Just under 70 percent of new S&P 1500 CEOs in 2023 — 68 percent — were internal appointments, a decline from 72 percent in 2022, according to the Spencer Stuart report. Seventy percent of MidCap 400 new CEO appointments and 62 percent of SmallCap 600 appointments came from inside the company. Spencer Stuart continues to see strong divergence between the public and private capital markets, with public boards opting for a perceived less disruptive internal option while private investors more often seek to recruit external leaders (typically 75 percent or more of the time).

4 Reasons to Hire a CEO From a Different Domain
When people set their minds to something, it’s hard to change them. It’s true in life — and in executive search when a board determines the type of CEO they want to hire. “I see it often in the staffing industry where a company intently focuses on hiring leadership talent only from within their domain,” said Lisa Maxwell, founder and managing partner of executive search firm Gerard Stewart, in a new report. “If their focus is light industrial (LI), they want a CEO out of LI. If their focus is healthcare, they are determined to keep their candidate lists clear of any talent outside of healthcare staffing.”

“Large- and mid-cap companies have historically leaned more heavily toward insider appointments than smaller companies as they can more easily leverage a divisional president or similar management structure to train well-rounded P&L leaders,” the search firm explained. In 2023, 74 percent of new S&P 500 CEOs were internal appointments, compared with 82 percent in 2022. Spencer Stuart believes the dip in 2023 reflects a couple factors. “More large companies faced market disruption or poor performance, making them more open to external candidates,” the study said. “At the same time, many management teams that matured together over the past four years through the pandemic did not experience the typical turnover, leaving some companies without logical internal successors.”

The study found that 32 new S&P 1500 CEOs in 2023 (24 percent) were external appointments, and another 11 (eight percent) were appointments from the board. This is an increase from 2022, when there were seven appointments from the board (five percent). CEOs appointed from the board often serve as a bridge solution when there is not a “ready now” internal successor or to provide stability in a challenging time. The report says that they tend to be experienced CEOs and may not have the runway or desire to serve a long tenure. After a spike in from-board appointments in 2020, when 13 percent of successors were appointed from the board, these types of transitions dropped in 2021 and 2022.

Starting Age of CEOs Reaches 10-Year High

The average age of outgoing CEOs across the S&P 1500 was 61.6, lower than the 62.4- year average in 2022 and on par with a trend Spencer Stuart has seen in recent years. Across the full S&P 1500, the average tenure of outgoing CEOs dipped from 9.9 to 9.0 years, which is on the lower end of the historical range. S&P 500 CEO tenure, at 8.9 years, continued to decline from its 2021 peak of 11.2 years and 10.2 years in 2022. During the pandemic, tenure peaked for S&P 500 CEOs, as many CEOs stayed in the role longer to provide a safe pair of hands amid the disruption.

Related: Seven Steps to Successful CEO Succession

Incoming CEOs were notably older in 2023, with the average age at start for S&P 1500 CEOs reaching an all-time high of 56.2 years, more than a year older than the prior high of 54.8. The jump is especially noteworthy in the S&P 500, where the average age dipped to 53.8 in 2022 and bounced back up to 56.4, continuing a longer-term trend of rising CEO age. This is not surprising in a more uncertain period when leaders who have lived through more economic cycles are leaned on more heavily, Spencer Stuart noted.

Why Do CEOs Leave?

Consistent with prior years, the study found that a vast majority of CEO transitions were attributed to the outgoing CEO’s decision to retire or depart for another role or for personal reasons. Planned departures drove 86 percent of S&P 1500 transitions in 2023, the same as in 2022. Resignations under pressure rose to 10 percent from five percent in 2022, boosted by an increase in oustings among S&P 500 companies — from seven percent in 2022 to 16 percent in 2023. Three MidCap 400 CEOs and three SmallCap 600 CEOs departed under pressure.

Resignations under pressure grew as performance waned at more companies and board members felt pressure from investors to take action. Spencer Stuart also saw more scrutiny of leaders for non-financial performance, with some leaving voluntarily or under pressure due to increasingly complex stakeholder management demands.

The Path to CEO

Looking across the Spencer Stuart indexes, the COO role is the most common route to CEO, followed by divisional CEO. “Leapfrog” appointments are consistently more common among midcap and small-cap companies than the S&P 500. No leapfrog appointments were made among S&P 500 companies in 2023, but nine percent of MidCap 400 and SmallCap 600 appointments came from below the C-suite.

The majority of newly appointed S&P 1500 CEOs, 82 percent, are serving in their first public company CEO role. This has been largely consistent over the past five years, though Spencer Stuart observes somewhat greater volatility within indexes. For example, 78 percent of incoming S&P 500 CEOs were first-time public company CEOs in 2023, versus 93 percent in 2022. Among the MidCap 400, 88 percent of new CEOs in 2023 were first-time public company CEOs, up from 85 percent in 2022, as were 82 percent of new SmallCap 600, the same as in 2022. Almost all internal appointments are first-time CEOs, making this an unsurprising finding.

Gender Diversity   

Thirteen percent of all new S&P 1500 CEOs (17) were women, just below the historic high of 14 percent in 2022, according to the Spencer Stuart report. These appointments bring the total number of female CEOs on the S&P 1500 to 111 out of 1,517, or seven percent. Small-cap companies appointed the largest share of women with 14 percent of incoming.

The report also found that 14 percent of SmallCap 600 CEOs were women. Among S&P 500 companies, 11 percent of CEO appointees were women, on par with recent years, and the number of active female S&P 500 CEOs rose from 38 to 40 (eight percent). All five of the incoming S&P 500 female CEOs were internal appointments, compared with 71 percent (29) of the newly appointed male CEOs.

Looking across sectors, industrial companies appointed the largest share of women, with seven of 40 new CEOs (18 percent), the study found. The consumer and industrial sectors have the highest percentage of active female CEOs at nine percent. The healthcare and technology, media and telecom sectors each added one new female CEO. The technology sector has the lowest overall representation of active female CEOs.

Related: Exploring 5 Myths of CEO Succession

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Executive Editor; Lily Fauver, Senior Editor – Hunt Scanlon Media

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