Internal CEO promotions ease damage
Print Edition
LARGE Chinese listed firms are more likely to promote chief executive officers from within to minimize the potential damage on company returns, a survey said yesterday.
About 92 percent of CEO changes at China’s largest listed firms were succeeded by insiders last year, higher than the world average of 78 percent, according a survey by Strategy&, a consultancy unit of PricewaterhouseCoopers.
The survey covered 2,500 largest listed companies in the world.
The sample found the CEO turnover in Chinese firms, usually large state-owned companies, has less impact on company returns as the replacement was not due to performance challenges, Strategy& said.
It found that companies hiring insiders as CEOs and have succession plans could suffer less damage to performance from the top management shake-up.
“Over the past 10 years, the highest performing companies have hired 79 percent of their CEOs from the inside, compared with 70 percent at the low performers,” the survey said.
“In addition, insider CEOs are less often forced out of office and have slightly longer tenures than the outsiders,” the survey added.
CEO turnover at a company could hurt shareholders’ benefits as it could lead to shifts in the top management, a change in corporate priorities and an inward focus, according to the survey.
Shareholders usually suffer a 2.3 percent loss in the year leading to a CEO turnover and 3.5 percent loss the year after, the survey revealed after analyzing data from the same series of surveys in the past three years.
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