U.S.-listed companies are likely to look within its ranks to replace a CEO, according to a study of 381 S&P (Standard & Poor's) 1500 companies between 2007 and 2009.
Executive compensation research firm Equilar, which released the findings on Thursday, noted that 73 percent of CEOs who replaced departing ones during the three-year period were already employees, while a quarter, or 24.9 percent, were external hires. About 2 percent were former CEOs returning to the job.
According to Equilar, there were 420 CEO resignations over the three years. Executive turnover rate was the highest in 2008, at 156, while 138 and 126 executive departures were recorded in 2009 and 2007, respectively. Of the companies surveyed, 348 changed their CEO once while 33 companies changed their leader at least twice, it said.
The research firm pointed out that there are pros and cons of selecting a successor from inside or outside of the company. An internal candidate, it explained, is familiar with the company and its culture but at the same time, he may carry unfavorable habits and outdated ideology from a predecessor. A new hire is likely to bring in new ideas and make sweeping changes but may have difficulty gaining the trust and support of the management team.
Citing a decade-long CEO turnover study by Booz & Co. Equilar added that internally hired CEOs not only perform better and serve in the job longer, they also produced superior shareholder returns in seven out of the last 10 years. In contrast, a separate study by Spencer Stuart claimed that internal hires excel when the organization is doing well, while externally hired CEOs perform better when the company is in a dire situation, it noted.
Equilar's study also revealed that more women are taking on the helm of chief executive. Between 2007 and 2009, 17 companies hired a female CEO to replace an outgoing male CEO, while two organizations did the opposite.
In addition, the research firm said 35 CEOs who stepped down during the period had founded their companies.
In recent months, there have been a number of leadership changes within the IT industry. In August 2010, Mark Hurd resigned as CEO of Hewlett-Packard following an accounting scandal. Hurd later resurfaced as president of Oracle while former SAP CEO Leo Apotheker replaced him as HP CEO.
LG Electronics head Nam Yong also resigned in September on the back of the company's poor mobile phone performance. That same month, Finnish phonemaker Nokia appointed Stephen Elop as CEO to replace the outgoing Olli-Pekka Kallasvuo. Twitter CEO Evan Williams stepped down in October, and was succeeded by COO Dick Costolo.
In January this year, Dirk Meyer stepped down as AMD chief, while Alibaba.com's David Wei left with COO Elvis Lee in February to take responsibility for the e-commerce site's spike in fraudulent activities.
Most recently, Gianfranco Lanci quit as Acer CEO and President following a strategy dispute with the company board.