The Multifaceted Role of Today’s CEO
February 1, 2023 – Today’s CEO must be able to navigate a wide array of challenges. To deal with changing market conditions (such as the war in Ukraine, supply chain disruptions, and an uncertain outlook) along with the demands of sustainability, technology, cybersecurity, and workforce well-being, among others, CEOs must be able to change and adapt with the evolving environment and yet react with speed and agility in decision-making. It could be argued that more is expected of CEOs than ever before, says a newly released report, “The Role of the CEO 2023,” from BoardEx, which is now a part of Altrata.
“The CEO’s role and expectations of it are also changing,” the report said. “Rather than focusing on reporting to directors and shareholders, as they might have previously, CEOs must now also satisfy a wide range of stakeholders across society.” A recent report from Korn Ferry suggests that CEOs must govern in a new “business ecosystem” that includes “customers, community, suppliers, distributors, competitors, and more.” In short, the modern CEO must be both business-smart and emotionally intelligent.
While navigating the evolving structures and longer-term demands of the role, the CEO must make decisions around the priorities of the business in the short term, says BoardEx. “These priorities tend to shift over time and in response to market conditions and competition,” the report said. “As 2022 drew to a close, the priorities of the CEOs of Fortune 500 companies centered on growth strategy, namely innovation and acquisitions. Other priorities were on the operational side, to deal with inflation and supply chain disruptions. As 2023 evolves, so will CEOs’ business priorities.”
Connecting with CEOs
It is crucial for business executives in every industry to connect with, engage, and form relationships with CEOs because they are the final decision-makers (apart from their boards) on strategic or large-budget issues, says the BoardEx report. Fortunately, senior executives’ own professional networks give them a surprisingly high number of connections to CEOs.
The BoardEx report said that the average U.S. consulting firm partner was found to have a direct connection to nearly 55 U.S. CEOs and the average PE senior executive has more than 50 direct connections while an investment banking senior executive had slightly fewer at 47. And through the direct connections of others they know, these senior executives’ second-degree connections to CEOs were even greater in number, reaching the thousands.
“The considerable time a CEO has spent in industry – as both the strategic leader and public face of their business – means they have, as a matter of course, built up formidable networks of primary and secondary connections,” the report said. David DeWolf, president and CEO of software development company 3Pillar Global, said: “A CEO is uniquely positioned to provide relational capital” and offers access to “resources otherwise out of reach.” BoardEx notes that as a source of warm connections, this makes the CEO even more valuable.
Only around six percent of CEO positions at the corporations of the major indices in the global 20 were held by women. In only six countries (Singapore, Ireland, Australia, South Africa, Sweden, and the U.K.) did the proportion of women CEOs exceed 10 percent. At the other end of the list, BoardEx found that Japan fell below one percent, while Italy and Switzerland had no female CEOs. However, in relation to the latter point, BoardEx says it is worth noting that the major indices for Italy and Switzerland comprised a relatively small number companies, at 40 and 20 respectively (and the two countries perform much better when it comes to women on boards and the wider leadership teams).
The low proportion of female CEOs was due, in part, to a lack of women in the C-suite, according to the BoardEx report. “Among the constituent companies of the major indices in the global 20, women accounted for just 19.2 percent of such leadership positions at the start of 2022,” the report said. “Consequently, the talent pool of female CEO candidates is markedly shallow. While women now make up around half of the college-educated workforce, there is a pipeline issue around suitably qualified female executives further down the promotional ladder. Companies are coming under public and stakeholder pressure to rectify this gender imbalance but, while progress is being made, it is gradual at best.”
The report also found that sizeable privately owned companies have a greater proportion of female CEOs than those that are publicly listed in the U.S. and U.K.. Among S&P 500 companies, only 7.1 percent had a female CEO, while the U.K.’s FTSE 100 fared only a little better at 10 percent. Looking at private companies with annual revenues of $100 million-plus in these countries, the U.S. saw a more encouraging 16.1 percent of female CEOs while the U.K. had 14 percent.
“Among privately held businesses, the slightly more even gender balance could be partly a result of internal promotions at family-run firms,” the BoardEx report said. “There may also be a measure of negative stereotyping discouraging women from applying from senior positions in the established corporate behemoths of Wall Street and elsewhere; it is, after all, the male-dominated boards that pick the CEOs.”
A Korn Ferry survey suggests that women CEOs have had to work harder than their male counterparts to reach their leadership positions (BoardEx’s U.S. and U.K. data show that, on average, they are around two years older at the time of their CEO appointments). Interestingly, a large majority also said that they had not considered themselves CEO material until a senior colleague had encouraged them to aim for the top (they had been concentrating on hitting personal targets rather than self-advancement).
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In terms of age, the BoardEx report found that CEOs of larger companies were generally in their mid to late 50s (the average age of the CEO of a major publicly traded company in a G7 country is 57.8). This reflected the time needed to climb the internal promotional ladder (26.4 years on average among the G7), with the CEO typically being the oldest person in the C-suite (and by quite a few years, too). “It may also reflect the fact that boards of both publicly listed and private companies value experience and accumulated relationship capital above the dynamism and enthusiasm of youth when electing their leaders,” the report said.
The Path to the CEO Role
Among the corporations comprising the major indices of the G7 countries, the BoardEx report found that there was a clear bias (82 percent) toward the internal appointment of CEOs. This bias was even more exaggerated at S&P 500 companies (87 percent) and those in the FTSE 100 were not far behind (79 percent). “Given the greater stakes from a reputational and governance perspective for large publicly held firms, internal candidates offer a proven track record and a demonstrated ability to cope with the pressures of managing a public company,” the report said. “As company size reduces, this bias begins to even out: 74 percent of CEOs at S&P SmallCap 600 and 54 percent at FTSE SmallCap firms are appointed internally. In addition, it is worth pointing out that just four percent of current S&P 500 CEOs are also founders or cofounders of the company they lead; typically the journey it takes to reach this size of company is a long one and many large listed companies have been around for decades.”
Should Your Next CEO be an Internal or External Hire?
Germany, Austria, and Switzerland, known as the “DACH” region, are German-speaking countries where supervisory boards not only define profiles and requirements for hiring the CEO, they are also responsible for their appointment. Consultants and management auditors support these processes, helping boards to ensure that suitable candidates have the required skills and experiences. “However, experience shows that this is only one side of the coin,” said Rudolf von Buenaum, managing partner in Dusseldorf, Germany for EMA Partners International, in a recent report. “We strongly believe that the company’s momentum plays a pivotal role in answering the question: Should this be an internal or an external hire?”
The BoardEx report says that external appointments play a substantial role at large private companies in both the U.S. and U.K. — and particularly in the US compared with their publicly held counterparts. While some private and especially family-owned businesses take a long-term view (accompanied by fewer short-term pressures such as quarterly earnings announcements), others are acquired with the purpose of scaling growth in a short space of time.
External CEO appointments were, therefore, even more common at portfolio companies, occurring at 69 percent of those owned by U.S. PE firms in the PEI 3007, according to the BoardEx report. “PE firms often replace — sometimes immediately, sometimes later — the CEOs (and other leaders) of companies they acquire,” the report said. “Because PE firms have invested significant capital in the portfolio company, they will want to hire a CEO who is fully aligned with their approach. Moreover, because portfolio companies tend to be smaller than publicly traded firms, the internal succession pool may be limited.”
Of the 13 percent of U.S. S&P 500 CEOs who were external appointments, a significant majority (78 percent) were already in a CEO or president role, said the report. Understandably, when they decide to look beyond their own ranks for a leader, major companies are keen to find one with experience of handling the pressures and commercial challenges exerted on top executives.
“Among numerous findings in the report, an unsurprising but recurring theme is the need for CEOs to progressively adapt and respond to fast changing market conditions, in an increasingly complex landscape,” said James Lavell CEO of Altrata. “At Altrata, we help our clients navigate these environments with effective and actionable people intelligence. In challenging times, unleashing the true potential of your network is more crucial than ever.”
To read the full report click here!
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Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media