On Monday 20^th November 2019, the Australian Financial Review published a table of the top 50 CEO salaries in Australia. The headline: “A woman tops CEO pay ranks for the first time” set the tone for the main story.

But hidden inside the data table of CEO salaries ranked from $18 million to $4 million, is another equally interesting story that did not get a mention. As a footnote to the table it noted those CEOs who had been promoted from within the organisation. There were three: Matthew Comyn of CBA , Patrick Regan of QBE, and Trevor Croker of Aristocrat Leisure.

That makes only 6% of CEOs of our top Australian companies being developed through the organisation and groomed for leadership. This suggests that 94% of our CEOs come into the top role without any experience of the company’s culture, the key people, the context for the current strategies and the prevailing market context. This of course is an assumption only – it’s always possible that many of these incoming CEOs come from competitor organisations or organisations operating in a similar context – but a quick check of the online bios of several of them says that is often not the case. 

Is this the way it should be? Or not?

A 2016 review of the research by Stanford Graduate School of Business showed some interesting findings:

• Among the top 1,000 largest US firms, 33% hired CEOs from outside the firm. This has grown from 15% in the 1970s. This ratio of about 70% internal to 30% external is confirmed by a number of other sources and studies.
• Other studies showed that firms are more likely to hire an external CEO if they are experiencing difficult trading conditions, are facing considerable uncertainty or need significant change.
• Research showed that shareholders react more positively to an announcement of an external hire.
• The evidence regarding performance differences of internal versus external hires is mixed and inconclusive (some studies show external hires to be more successful whilst others show internal), except where a CEO is forced to step down and is replaced by an external hire. This conflicting evidence is because as researcher agree, it is very difficult to design a good research model to study this as there are too many ‘extraneous variables’ that impact on the results.

So the question raised by the lack of internal successors in Australian companies is: are our companies experiencing such need for change or experiencing such tough trading conditions that they require external hires or are they simply not good enough at internal succession planning and leadership development at the top end of the organisation?