The world’s top-performing companies appear to believe strongly in the promote-from-within model for choosing a chief executive.
A study by Hay Group shows that chief executives of 2012’s top 20 World’s Most Admired Companies (WMACs) by industry peer voting have, on average, served more than 25 years at their organisations. Lower-ranking peer companies have CEOs who average just 10 years within the organisation, according to Hay Group, a global management consultancy.
The research shows that more than 90% of WMACs have well-defined succession plans, compared with 65% of the lower-performing companies.
Succession planning is just one part of talent management that can help or hinder a company’s growth.
“A clear focus on leadership development and talent management has long been a key feature of the WMAC and other high-performing companies,” Yvonne Sell, head of leadership and talent for the UK at Hay Group, said in a news release. “Our research shows that these practices have supported CEOs to rise to the top and deliver strong organisational performance, suggesting firms across the world should take a leaf out of the WMACs’ book.”
Hay Group pairs with Fortune magazine each year to come up with the list of WMACs, which are rated by industry and non-industry peers on categories such as the ability to retain talent, innovation, quality of products, social responsibility and long-term investment value. The entire list is 358 companies and is broken down by industry and other classifications.
The ones that rank highly – think Procter & Gamble and IBM – all have CEOs who have risen through the ranks of their companies. Just two CEOs in the top 20 by peer ranking have worked at their companies less than 14 years.
Tim Cook, the CEO of Apple, which topped the WMAC list for the fifth year in a row, has been with the company 14 years. He became the CEO in August 2011.
“We are not suggesting that CEOs must always be hired internally and understand that the circumstances of the firm and changing requirements of the role may prevent this,” Sell said in the release. “However, the advantage of being able to rely on home-grown talent and the positive impact on business performance makes the case for effective talent management and leadership hard to ignore.”
Related CGMA Magazine content:
“Talent Becoming A Bigger Concern As Companies Grow Globally, Report Says”: More executives are looking to groom in-house talent, and 30% say succession planning is a top concern.
“Tackle the Talent Gap by Meeting Five Challenges”: Employers’ difficulty finding and keeping the right talent are widespread – and so are suggestions for coping with this challenge.
—Neil Amato (firstname.lastname@example.org) is a CGMA Magazine senior editor.