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Number of FTSE 100 companies with a Deputy CEO halves in two years
Number of Deputy CEOs drops from six to three between 2013 and 2015
Low usage limits succession planning options and increases risk of lengthy periods of instability
LONDON, UK (1st February, 2016) – The number of FTSE 100 companies which have a Deputy CEO has halved within two years, as some big UK businesses risk succession planning issues by not proactively addressing the future of their CEO role, reveals research by global executive search firm DHR International.
DHR International says that just three FTSE 100 firms currently have a Deputy CEO, compared to six two years ago. One of the three Deputy CEOs, Mike Rees of Standard Chartered, announced his retirement in January, meaning that the number will reduce to two unless he is directly replaced.
DHR International explains that despite their current lack of popularity amongst FTSE 100 companies, Deputy CEOs can offer organisations more flexibility over how they handle the replacement of a CEO. A Deputy CEO sitting on the board should offer shareholders reassurance that the sudden departure of a CEO will not lead to a poorly managed and potentially lengthy interregnum.
Shareholders may worry that even an Interim CEO appointed at short notice from inside the company will need to spend too long getting up to speed – a period when the business may be relatively rudderless.
Frank Smeekes, Managing Partner, Europe at DHR International, explains that although the board may decide that they would like a different candidate to lead the company in the long term, a Deputy CEO can ensure that the business is properly led whilst a search is undertaken.
Frank Smeekes explains "Shareholders do not want businesses to go through any period of uncertain management or strategic drift. This can act as a drag on a company's share price as well as impact on profits."
"Having a Deputy CEO, who is already known to shareholders and has board experience, prevents this and can provide continuity if the board decide to search for an external candidate and then wait for them to finish their notice period."
DHR International says that for many companies the issue can often lie in the struggle to build long term board-level engagement with the succession planning process.
According to DHR International, well-executed succession planning should involve a maximum of three years between a Deputy CEO's appointment and their succession to the CEO role. The firm explains that this is vital to ensuring that:
The danger of losing a chosen successor to rivals by ear-marking them as a CEO candidate is reduced.
The risk of ending up with 'two captains of the ship' and creating disputes over authority is minimized.
Frank Smeekes adds: "Deputy CEOs can be a powerful tool when it comes to succession planning – provided they are used properly. Where this position does exist, it is important that it is considered as part of deeper board-level engagement with the succession planning process."
"It's vital that the board takes a hands-on role in ensuring that filling the most important position in the organisation is treated as the business-critical process it is."
"Shareholders are always keen to know that there is a robust forward plan in place for the CEO position, both from a short-term 'emergency' standpoint, as well as in the longer term. Having a Deputy CEO in place with a definite timeline for succession demonstrates this plan to shareholders in the clearest terms."
"The lack of Deputy CEOs in the FTSE 100 at present may well be due to fears over the potential negative effects of appointing an earmarked successor, such as a competitor poaching them. A clear succession strategy reduces these risks substantially and means that regardless of whether the appointment of a new CEO is expected or unexpected, shareholder value can be protected."