Saudi Arabia’s CEO turnovers highest: Study

Layan Damanhouri Saudi Gazette JEDDAH – Saudi Arabia had the highest CEO succession rate last year at a rate of 38.5%, according to a study conducted by Strategy&, PwC’s strategy consulting business. Consequently, the Middle East stood as the region with the highest turnover rate at 21% of the 62 corporations, exceeding the global average of 17%. The report essentially focused on cases of planned successions within the largest 2,500 largest public companies in the world, where gradually more and more corporations have been deliberately choosing their new CEO from outside of the company. Hiring an executive from outside a company to serve as chief executive officer used to be seen as a last resort, according to Per-Ola Karlsson, partner with Strategy&. He said “that is not the case anymore with the disruptive market-related changes that companies are facing today. While an internal CEO candidate may have an excellent record of achieving the business goals the company has pursued in the past, boards are recognizing that this candidate may lack the skills needed to lead the company through the changes necessary to win in the future.” Saudi Arabia witnessed the highest rate of change due to several factors including the shift of leaders from the private sector to ministerial positions or senior government positions, Karlsson said. “The turnover of CEOs from the outside is too high in this region. Having people from within who know the industry and the company culture actually makes for better CEOs,” he told Saudi Gazette. When asked about the major reason for this upsurge, Karlsson said the lack of leadership programs is one driving force. “In the Middle East, leadership development practices are not as advanced as other regions, resulting in leaders that are not experienced and fit for the role," he said. "The number is a reflection of the fact that there’s not enough focus and attention of bringing up the next generation of leaders.” The other outcome from the study showed that higher turnovers led to more outsiders because there was less time to develop new leaders. “Companies in the Middle East recognize that they need to improve the human capital development," he added. "As they learn to do that in a better way, the outcome will produce better leaders that will succeed.” When asked about the willingness of family-owned businesses in the Kingdom to bring in outsiders as CEOs, Karlsson said “many of them are now going through a shift from the second to the third generation and are learning to separate family from business. However, they still build a lot of their selection on trust and loyalty rather than who is technically the most skilled person and still favor insiders. There will be changes but will take time.” The rising trend of planned successions has shown that another major reason the global average has jumped from 15% to 17% of the largest companies is that there was a higher amount of mergers and acquisitions. However, the global share of incoming women CEOs fell to less than 3%, the lowest percentage since 2011. Just 10 of 359 incoming CEOs in the class of 2015 were women. In addition, female CEOs are also more often hired from outside the company than male CEOs. The report further showed that whether the new leader comes from the inside or outside the organization, companies that plan for CEO succession more carefully are more likely to be better performing.