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Home-grown CEOs are best

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Developing talent from within drives better business performance, as CEOs in the World’s Most Admired Companies average 25 years of service at their organisation. Less successful peer organisations fall behind with CEOs amassing just ten years of service. Warning bells sound for less successful organisations, which lack succession plans for critical top team roles.

CEOs who have risen through the ranks are good for business, according to new meta-research from global management consultancy Hay Group. The study reveals that chief executives at the high-performing 2012 World’s Most Admired Companies¹ (WMAC, published in March 2012) – which have delivered total shareholder returns of almost three times that of the S&P 500 over the last ten years, boast an average length of organisational service throughout their careers of more than 25 years. Yvonne Sell, head of leadership and talent for the UK at Hay Group, comments: “A clear focus on leadership development and talent management has long been a key feature of the WMAC and other high performing companies. 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.”

Current Apple chief executive Tim Cook has worked for the technology company, which tops the 2012 WMAC overall industry rankings, for 14 years. McDonald’s and Philip Morris International CEOs follow closely behind (22 and 34 years in organisational service respectively). Please find full rankings in Table 1. Meanwhile, leaders at the helm of lower-ranking peer organisations have an average tenure of just 10 years, indicating that the WMAC’s strong focus on leadership and talent management sets them apart. While over 90 per cent of 2012 WMACs have well-defined C-Suite succession plans, only 65 per cent of peer group companies are making careful plans to ensure top-team continuity. Yvonne Sell comments: “To create the right environment, companies must look beyond quarterly results and short-term performance, and set their sights firmly on the future. They need to establish what kind of leaders their business will need to flourish in future and put in place a robust talent management and assessment process to identify and enable these employees to develop and rise to the top.”

The WMAC industry rankings are based on a peer rating, where organisations across the globe are scored in nine key categories, including the ability to attract and retain talent and quality of management².

Yvonne Sell comments: “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. 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.” A separate Hay Group study also supports these findings. Now in its seventh year, the 2011 Best Companies for Leadership (BCL) study³ aims to identify which organisations have the best leadership practices, and what can be learnt from them. In these top companies, CEOs have served for an average of 28 years. For instance, Chairman and Chief Executive of Coca-Cola, Muhtar Kent, has spent 27 years at the drinks company and CEO Paul Polman has worked for 22 years at Unilver.

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