Studies of UK Chief Executive Officers in the FTSE 350: implications for management, succession and governance

Abstract

There is limited recent evidence from the UK on the sourcing and backgrounds of Chief Executive Officers (CEOs). Practitioner views are dominant and suggest a frequent “churn” of these individuals between lucrative roles. In particular, the implications of hiring profiles, organisational career paths and demographic backgrounds have not featured in the research focus, which has perpetuated the practitioner view of CEO succession. The governance implications of CEO successions in non-domestic companies are linked to home market culture to seek validation for different approaches to compliance with governance standards. This thesis presents three linked papers on CEO succession, with the final paper evolving a governance focus from a finding of the research into the earlier papers.

Chapter 2 (Paper 1) considers the implications for the future of the publicly traded corporation in terms of its leadership talent pipeline by considering the questions of the succession, age and tenure, and recruitment of CEOs. It examines a sample of the 350 largest UK publicly quoted companies and develops a research agenda focused on the succession, age, tenure and provenance of recruits to senior executive roles. The paper shows the predominance of internal recruitment, with ageing CEOs in role for over six years and close to retirement. These CEOs tend to be replaced by successors with similar age profile and recruitment characteristics, as the level of “churn” of CEOs between roles is reported as minimal. It may appear that focus on succession planning has produced results, as many CEOs are recruited from an internal talent pool and enjoy longer tenures than previous research has indicated. However, the future talent pipeline may be at risk due to a lack of development opportunities.

Chapter 3 (Paper 2) examines the outcomes of talent management at the 300 largest companies in the UK, using a quantitative approach. It examines the relationship between the functional backgrounds and age demographics of CEOs and firm performance. It further links antecedent organisational performance to the internal-external CEO hiring decision. The findings show a relative predominance of general management skills in current CEOs. Replacement CEOs are usually sourced internally and long tenure is associated with improved firm performance. This holds true even with below-average antecedent firm performance, where firms are expected to address strategic shortcomings by seeking an external recruit. The article discusses the implications of the findings for succession planning and career paths.

Chapter 4 (Paper 3) engages with a small sample of non-domestic companies listed on the London Stock Exchange. Such companies may seek to access capital in a more liquid market as a statement to the market of a propensity to disclosure and a willingness to protect minority shareholders. Yet, many non-domestic companies retain tightly-controlled shareholding structures and are based in emerging regions where national cultural norms differ from the UK. The paper hypothesises on likely lower levels of compliance with the principles of the UK Corporate Governance Code. It further suggests a relationship between lower levels of compliance and non-domestic companies from countries that demonstrate high power-distance and uncertainty-avoidance in the Hofstede (1980a) cultural values framework. In this exploratory approach to analysing compliance by non-domestic companies with the “comply-or-explain” governance regime in the UK, the paper develops a framework to guide future research into the contextual and cultural underpinnings of compliance monitoring and to enable regulators to further improve corporate governance codes.

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Identifiers

ORCID for Malcolm Higgs: orcid.org/0000-0002-9032-0416

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