The Butterfly Effect: CEO Movement and the Chain Reaction

A whitepaper focusing on the culture of reactive hiring and how to handle senior moves and their unexpected consequences.

Uncovering the cost of CEO departures.

This white paper illustrates the culture of reactive hiring, and provokes debate on how to handle senior moves and their unexpected consequences. It examines twenty, high-profile CEO moves. The results show that the majority of replacement CEOs came from the external market, most of these from direct competitors.

55% of CEO hires in Armstrong Craven’s study were external, suggesting internal succession planning is not working effectively. At the next level (CEO minus one), 60% of moves were internal suggesting organisations are more willing to ‘try’ the internal successor in leadership roles that are not at the top.

“64% of external CEO hires in our research came from direct competitors. Armstrong Craven estimates the cost to industry of these moves alone is in excess of £14 million, a cost borne in many cases, by the direct competitors of the company from which the CEO has departed. What’s more, the cost of all senior moves that were generated as the result of CEO departures, we estimate to be more than £25 million.”

At the CEO minus two level only 40% of the replacements in Armstrong Craven’s research were from an internal pool. Ettridge commented: “This corroborates what we hear on a daily basis; the leadership pool of three to five years out looks strong. Where the gap remains is the next generation of senior, global leaders.”

CEO tenure is decreasing and whilst this may be reflective of the changing needs of business, a lack of succession practices means a reactive cycle of events is triggered when a CEO departs. The resulting wave of hires, creates the butterfly effect; the theory that a single occurrence, no matter how small, can change the course of the universe forever.

The white paper puts forward ideas for changing the reactive hiring culture, and taking a planned approach in order to make significant savings, and reduce negative effects on shareholder investment and return.