CEO Turnover Points to a Short-Term Australia

A new study which has found that chief executives of our largest companies have half the tenure than their overseas counterparts underlined a worrying trend towards short-termism in Australia, the Business Council of Australia said today.

The study, conducted by leading management consultants Booz Allen Hamilton as a joint initiative with the BCA, found that global trends resulting in more chief executives departing in quicker time are far more pronounced in Australia.

In particular, Australian CEOs on average spend only 4.4 years in the top job, compared to an average 8.6 years for their global counterparts.

BCA President, Dr John Schubert, said the study raised a number of serious issues not just for companies but also for investors, the market and the Australian economy generally.

“The fact that the average CEO of a large Australian company spends half the time in the position compared to chief executives globally is of concern,” Dr Schubert said.

“It points to growing expectations that CEOs are expected to deliver more in a shorter timeframe, at the potential expense of longer-term strategies.”

Dr Schubert said given the overall strong performance of the Australian economy and sharemarket the study raised issues as to whether chief executives were marked harder than those in other countries.

While M&A activity-related turnover was higher in Australia than overseas in 2002, the longer-term trend suggested this was not the singular issue that might explain Australia’s disparity in average CEO tenure.

Dr Schubert said other likely explanations might include the growing trend towards CEO performance in Australia being judged within shorter timeframes as well as the demands of overseas travel, the result of Australia being geographically remote from the mainstream of global trade, he said.

“Overall, the study questions whether the timeframes of demands on and expectations of Australian CEOs and their performance are realistic in the longer term,” Dr Schubert said.

“The study also suggests we are potentially losing valuable experience at a quicker rate in what is a small market for experienced chief executives. This at a time when Australia relies increasingly on the performance of its large companies to drive local growth and performance in the global economy.”

The study found that:

  • The rate of CEO turnover in Australia is, at nearly 17.8 per cent, much higher than the global average of just over 10 per cent.
  • That the average CEO tenure in Australia has decreased, from nearly 6 years in 2001 to 4.4 years last year.
  • Mergers and acquisitions account for a sizable proportion of Australian CEO turnovers, but over the past three years the trends are broadly similar with overseas.

The study focused on all CEO turnovers, both voluntary and forced, of Australia’s top 200 ASX companies in 2002.

CEO Turnover in 2002: Trends, Causes and Lessons Learned