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Route to the Top-A tough job gets tougher: Spencer Stuart

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Route to the Top: A tough job gets tougher
By Spencer Stuart

Today’s CEOs are not only up against a slumping stock market, the threat of war and a competitive landscape but also face an increasingly suspicious public whose opinion of corporate America has shifted. CEOs once feted on national magazine covers are facing criminal charges for fraud and open season has been declared on corporate chieftains in general.

The 2003 Spencer Stuart survey of Fortune 700 CEOs, published in Chief Executive magazine, shows the impact of a tougher market on an already tough role and the trends that are emerging among today’s CEOs.

With an average of just five earnings quarters to prove themselves, it is hardly surprising that more than half (54%) of 150 Fortune 1000 senior executives said they would turn down the CEO position — double the percentage for 2002.

Although fewer CEOs left their posts in 2002 compared with 2001, there were 749 newcomers, with the result that nearly 20% of all Fortune 700 CEOs surveyed have been in the role for a year or less. So who is stepping up to fill those places? And what does it take to deliver the goods?

Increasing call for intangible qualities
The number of Fortune 700 CEOs with résumé’s sporting MBA degrees continues to rise (36%) and of these, more than a fifth come from Harvard. Fewer CEOs, however, now hold Ivy League undergraduate degrees.

However, board search committees are placing increasing importance on skills that have yet to be quantified but which nevertheless have an impact on the balance sheet. Operational experience, a proven ability to negotiate strategic alliances, liquidity management and the ability to build working relationships with boards of directors are key considerations.

But it doesn’t end there. After all the accounting scandals there’s a return to fundamentals. Subtle qualities including the ability to listen and learn, impeccable ethics and even empathy are becoming increasingly sought after. Humility and credibility are in. Grandstanding and celebrity are out.

Experience counts
The number of Fortune 700 CEOs who have followed one functional path through their careers continues to decrease with only 12% having no experience beyond one function. The two most common functions for this group are finance and operations with marketing and sales lagging a long way behind in third and fourth spots respectively.

Globalization of world markets has led to an increase in the number of CEOs who have worked abroad. This figure has risen three percent to 34% since 1998.

A different breed
It’s clear that today’s CEOs are a different breed from those of five or ten years ago. The average age of CEOs has held steady at 56 for the past four years but, while more than half the Fortune 300 CEOs (54%) fall into the 50 – 59 age group, candidates are being tapped for the top job at an ever decreasing age. Nearly one fifth (19%) of CEOs are now under 50 and the over 50 has dropped four percent since 2002. In 1980, more than half of all Fortune 100 leaders were in their 60s. Today, they number less than a quarter.

Compounding this is the fact that CEOs are not staying in the position for long. In 1980, only 46% of CEOs had been in their roles for less than six years. By 2002 that percentage had risen to 3%.

Shorter tenures are wreaking havoc with succession plans. Spencer Stuart’s US chairman Tom Neff, says: “Even in companies with good development plans, if directors decide they need a new CEO now, there may not be anybody ready internally.”

Dayton Ogden, co-chairman of Spencer Stuart, adds: “It’s harder to hold onto your number two because everybody like us is trying to see if he/she is ready to be number one somewhere else.”

Tenure may slowly be increasing, however. The survey also showed that the number of CEOs in their positions for a year or less (19%) has dropped seven percent in the last year, suggesting that house cleaning in the wake of corporate scandals is virtually complete.

Fortune 700 CEO survey: quick facts
• 19% are under 50
• 36% have an MBA
• Engineering is the most common undergraduate degree
• 19% have been in their positions for a year or less
• 34% have worked abroad
• Average company tenure is 16 years
• Finance is the most common functional experience followed by operations, marketing and sales