Pam Boschee, Managing Editor
This industry is experiencing a very high turnover rate, and you may be surprised to learn just how high the level goes with all those spinning leather chairs. The good news is the job security afforded to the employees that order and produce the new business cards and new name plates.
This commentary has previously discussed issues affecting CEOs and other execs, and EL&P chronicles the comings and goings of execs each month in our news brief section, Executive Appointments. We've certainly informally noted an increase in changing faces and changing places over the last couple of years.
Booz Allen Hamilton, however, did the math and found that the energy industry CEO is becoming the modern day "temp." In fact, the energy industry has seen one of the highest rates of CEO succession, second only to telecommunications.
Booz Allen looked at 231 CEOs of the world's 2,500 publicly-traded corporations who left office in 2001 and evaluated both the performance of their companies and the events surrounding their departure. To provide historical context, Booz Allen evaluated and then compared this data to information on CEO departures for 1995, 1998 and 2000.
Departures were classified as: merger-driven (CEO was axed when the CEO of the other company involved got the thumbs-up); performance-related (CEO was "asked" to leave by the board of directors or there was significant speculation in the business press that performance was the driver of the change, or where the CEO cited job stress [I'll bet!] as the reason for his or her resignation); and regular transition (where the CEO retired on a long-planned schedule, died in office or left to become the CEO of another company).
Findings specific to the energy industry were quite interesting and from them I've developed several rules of thumb for CEOs.
Rule 1: If you hear whispers of a merger, it's time to resurrect your resume and update it. Immediately begin networking.
 |
Among CEO departures in energy companies, 52 percent were driven by mergers, in which a CEO's job was eliminated after a merger. This far exceeded the percentage of merger-driven departures in the other kinder and gentler industries examined.
Rule 2: Don't worry about job performance. Lie low and odds are you'll get by unscathed.
Energy companies had the lowest percentage of CEO departures driven by poor job performance. For comparison, consider that 42 percent of departures from information technology companies were performance-related.
However, if you're a CEO in Europe, ignore Rule 2. You need to stay on your toes when it comes to job performance because more than half of all European CEO successions (across all industries) were performance-related compared to only a third of North American CEO successions. In fact, you may want to persuade your board that you need to head your company's North American subsidiary. The number of performance-related successions has continued to increase in Europe while declining in North America since 2000 and overall turnover among European CEOs is increasing twice as fast as turnover in North America. Even safer would be an appointment in Asia/Pacific, where performance accounted for only a fourth of CEO successions. It's always a good idea to keep your options open (and your suitcase packed).
Rule 3: Hone your negotiation skills and perfect your payout package. Then, hang in there for 10 years, no matter what. Again, lie low and odds are you'll make it.
Excluding CEOs who depart following a merger, average CEO tenure from 1995 through 2001 was 10.2 years in the energy industry, above the average 8.4 years across all industries. Only financial services saw longer tenures (10.3 years average).
Booz Allen noted that another contributing factor to shorter tenures in both regular and performance-related successions is the generous payout packages that initially U.S. CEOs and now, increasingly, CEOs outside the U.S. have negotiated for themselves. CEOs of many major firms often don't need to stay the course, generate profits or provide shareholder value to receive generous payoff benefits upon leaving office. Nice work, if you can get it.
Rule 4: Hit it hard while you're young.
The average age for starting energy CEOs is 48.5, while across all industries the average is 50. In Europe, the average starting age of CEOs is 49. Asia views these all as just young pups. Their average starting age of CEOs is 60.
Rule 5: Get as many job titles as possible appended to your name. Sure, you'll need a bigger name tag, but it will be well worth it.
Booz Allen observed an interesting correlation between job title and both performance-related successions and tenure. Departing CEOs who had no other title served for shorter periods and were more likely to be involved in a non-voluntary succession than CEOs with multiple job titles, especially if "chairman" was one of those titles. Single title CEOs served for an average of five to six years compared to nine to 12 years for CEOs who also touted the chairman tag.
