Marketing used to be the route to the chief executive’s chair, but the world has changed. Now, says Monika Hamori, professor of human resources at Instituto de Empresa in Madrid, it is finance chiefs who are most likely to get the top job, though experience in operations—running parts of the company—is also essential. CFO Magazine (a sister publication of The Economist) found in 2005 that one-fifth of chief executives in America were former chief financial officers, almost double the share of a decade earlier. The importance of quarterly financial reporting, and closer scrutiny since the imposition of the Sarbanes-Oxley corporate-governance act, have put CFOs in the limelight—and given them the chance to shine.
Another factor in reaching the top is whether you stay with the company you joined as a youngster. Ms Hamori’s research (with Peter Cappelli of the Wharton School in Philadelphia) looked at companies in the S&P 500 and the FTSEurofirst 300. She finds that”lifers” get to the top in 22 years (in America) and 24 years in Europe.”Hoppers” who jump between four or more companies, by contrast, take at least 26 years on average to become chief executives. Insiders get promotions that reflect their potential, because their bosses have enough information to be reasonably confident about their ability. When executives switch from one company to another, however, they tend to move less far up the hierarchy, the researchers found.
The time taken to reach the top is falling. The average time from first job to chief executive fell from 28 years in 1980 to 24 in 2001. Successful executives are spending less time than they used to in each intermediate job—an average of four years—and they fill five posts on the way up, down from six. One reason for this acceleration is that company hierarchies are flatter than they used to be. Another important shift is the advent of female chief executives. In 2001 women accounted for 11% of bosses at leading American companies, according to the Hamori/Cappelli survey; in the early 1980s there were none.
America is usually regarded as the home of raw capitalism, with youthful managers hopping from firm to firm and pushing their way to the top. But the Hamori/Cappelli study and another by Booz & Company, a consultancy, show that Europe is a more dynamic and harsher environment than America or Japan for chief executives. For a start, European chief executives are younger, with an average age of 54, compared with over 56 in America. The Hamori/Cappelli study shows that 26% of American bosses were lifers, compared with only 18% in Europe.
The Europeans also have a harder time once they get to the top. Booz & Company’s annual survey of chief-executive succession shows that 17.6% of European bosses moved on last year, compared with 15% of Americans and 10% of Japanese. Chief executives, the survey found, last longer in America: the average tenure over the past decade was just over nine years. But in Europe the average tenure over the same period was less than seven years.
Moreover, a whopping 37% of changes at the top in Europe were more or less firings, according to Booz, compared with only 27% in America and 12% in Japan. Booz puts this down to the more recent tightening of corporate governance in Europe. Another Booz finding is common to both sides of the Atlantic: looking back over recent years, board disputes and power struggles lie behind a third of chief-executive firings. In short, shareholder activism is making its presence felt, putting pressure on bosses to perform.