Amid the latest economic recession, Bain & Company and Spencer Stuart examined CEO transition trends across previous recessions and found that most businesses opt for stability in the thick of a crisis.
The strategy consulting firm and recruitment firm analyzed CEO transition numbers from the dotcom crisis of 2000 and the 2008 Global Financial Crisis (GFC), among others, to examine how boards react to an economic crisis. The report found that boards across the globe tend to hold off on a leadership changes until after the crisis is over.
In the three years following the dotcom crash, CEO transitions declined by one-third across the globe. The average decline stood at nearly 30% in the wake of the GFC as well, driven up by the tentativeness of the US and Asia markets, where transitions declined by more than 60%.
A similar trend appears to be unfolding during the economic fallout of the Covid-19 crisis, with steeper figures for Europe in the mix. Bain and Spencer Stuart report that CEO transitions across Europe and Asia have halved during April and May this year when compared to figures from last year, with similar declines across other global markets.
“That’s a common reflex. Facing ambiguity, people often select known options over unfamiliar ones,” wrote Christie Parsons, a VP in Bain’s in Silicon Valley office and co-author of the report. “Beyond the comfort in familiarity, most businesses turn their attention to business continuity and survival when a recession hits suddenly, lacking the time or resources to manage a transition.”
Bain and Spencer Stuart zoomed in to specific sectors and time periods to find that the year immediately after a recession reaches its nadir is the point of lowest transition, while the sectors most directly affected by the crisis also tend to favor stability. In the wake of the GFC, this was the financial services sector, while the tech industry was the most tentative during the dotcom crisis.
That being said, CEO transitions and successions are more often than not crucial moves for businesses. CEOs might be falling short of performance standards, violating ethical guidelines, or representative of old ideals while the company is looking to transform, and delaying a change in any of these scenarios could be costly.
As the world navigates what could be a recession of unprecedented scope, businesses need to toe the line between stability and future growth prospects. According to Bain and Spencer Stuart, keeping the present leadership in place might be a necessity for many boards, but the eventual transition should not fall down the list of priorities.
Three factors need to be kept in mind to prepare for this eventual transition. First, businesses should refresh their rapid emergency transition protocols. These protocols should be in place and evolving at all times in preparation for anything from health issues among the leadership to a global pandemic.
Secondly, the board needs to consider what their company needs in the immediate wake of the crisis. In many cases, this will be the most crucial period for a business, and the principles and priorities set during the recovery period could determine a company’s competitiveness in the post-crisis market.
The authors point to the performance of an executive during a crisis as a metric of their suitability for leading the firm out of trouble.
“Above all, did the CEO show care and empathy for people, ensure workforce safety, and protect the business while tackling operating challenges? How quickly did he or she mobilize people, reestablish customer relevance, and adapt value propositions? What does the CEO’s agility, judgment, and decision making during the crisis indicate about his or her ability to lead in an uncertain future?” wrote Courtney della Cava, a San Francisco-based partner at Bain and co-author.
Thirdly, boards need to think about the future beyond crisis recovery. Once the crisis has passed, market trends and priorities for the post-crisis world will become clearer, which can be of tremendous value when choosing a leader for the future. Under the current circumstances, the report points out that the values sought after in a CEO are likely to shift from business experience and acumen to modern values of mental agility & flexibility, empathy, humility, ability to manage diverse teams, and a strong ethical foundation.