What did Next (NXT), Dechra (DPH) and Ocado (OCDO) have in common at the end of 2023? The answer is that they were the only FTSE 100 companies with chief executives who had been in their roles for more than 20 years. Unless such longevity has bred groupthink, it should indicate long-term thinking, the confidence of fellow directors, and hopefully strategies that will deliver sustainable growth (Dechra has since dropped out of the FTSE 100 following the completion of its £4.5bn acquisition by EQT, the Swedish private equity group).
Stockbroker AJ Bell has ploughed through company accounts and identified another 15 with chief executives who’ve served for 10 years or more. One of these, Nicholas Anderson at valve-maker Spirax-Sarco (SPX), plans to retire early this year, but all being well another will reach their 10-year mark in the next few months (Liv Garfield at Severn Trent (SVT).
It looks as though the average tenure of a FTSE 100 chief executive is now about five-and-a-half years, which is longer than is often thought, and that on average 13 have left each year since 2000. The number ranges from a high of 22 in 2020, probably due to the different qualities needed to manage multi-billion-pound companies in the changed circumstances of the pandemic, to a low of eight in 2021, by which time company boards had battened down their hatches.
Last year was the second highest this century, with 19 departures. Three of those were interim managers passing the baton on to more permanent replacements – at Prudential (PRU), RS Group (RS1) and Reckitt Benckiser (RKT). One was due to the hasty interim appointment of Murray Auchinloss to replace Bernard Looney at BP (BP.). Three others also left abruptly: at BAT (BATS) (sanctions busting in North Korea); NatWest (NWG) (media and political pressure) and Entain (ENT) (shareholder pressure). Most of the successions, though, had been well planned. Nine who took up the reins in 2023 had been identified before the year began, and by the end of the year, the successors at seven other companies had been hired for 2024. Another one, DS Smith (SMDS), is still head-hunting, but Miles Roberts has given plenty of notice. He doesn’t plan to retire until 2025.
Women are still under-represented. Just two FTSE 100 companies are chaired by women (Pershing Square Investment Trust and F&C Investment Trust (FCIT)) and only nine had female chief executives. This month, Allison Kirby became the 10th when she started at BT (BT.). Chief executives are increasingly former chief financial officers, and here the gender ratio is changing. Of the 30 female FTSE 100 finance heads, almost two-thirds have been in the role for less than two years. Over a third of those appointed in 2023 were women. A report by executive search consultancy Russell Reynolds estimated that at this rate of recruitment, gender parity could be reached in about eight years’ time.
A total of 29 FTSE 100 companies replaced their chief financial officers in 2023, the highest number for 10 years. According to the report, reasons include the increased scope of the role, the “rising tide of regulation” and higher interest rates, which have made the financing side more challenging. The greater demands have encouraged the old guard to retire and some to change direction. The scope has increased because new chief executives now look for “strategically minded CFOs… with greater leadership and communication skills, capable of assisting them on everything from long-term strategy to innovation and digital transformation”. For the finance head, that opens the prospect of progressing to chief executive, possibly with a stint as chief operating officer on the way.
If an opportunity arises and they’re overlooked, they know they’ll be in demand elsewhere, either as finance heads, including within private equity, or as advisers and non-executive directors. For boards, the need to digest a growing plethora of data makes their financial and numerical skills highly valued. Russell Reynolds says that their “general lack of ego” also helps. Portfolio careers beckon.
In finance particularly, recruitment consultants say that pay has lagged behind the expansion of the role. Organisations have managed costs by considering candidates with the potential to step up, rather than limiting the search to experienced chief financial officers, perhaps at smaller companies, in the same or similar sector. A recent FT article pointed out that over half the new finance heads at large UK and other European groups are doing the job for the first time.
The record high turnover of both chief executives and chief financial officers matters because quality of management is often cited as a major factor in investment decisions. Departures breed uncertainty, which is why longevity helps and succession planning is important. People new to any role go through a steep learning curve and are always a risk, but here the right person can have a lasting impact. Unfortunately, so can a wrong one.
