CEO career paths: is there a formula for success?
Even though the FTSE 100’s constituents range from student accommodation providers to some of the world’s largest oil companies, many of their chief executives are well-educated men who have steadily climbed the corporate ladder. Why is this the norm - and is it likely to change?
What are the typical routes to the top of business and how did today’s FTSE 100 CEOs find themselves on these? Becoming the leader of a large plc does not happen by accident. For all 97, it will have taken commitment and careful planning from an early age, along with support from senior mentors.
It’s striking that, whatever their initial specialism, virtually all are professional managers rather than entrepreneurs. There is only one founder-CEO: Tim Steiner, who was part of the trio that established Ocado back in 2000. Compare that with the S&P 500: more than 5% of the firms on this more tech-focused index still have a founder as a CEO or chairman.
As a result, it’s possible to sketch out the typical early career of a FTSE 100 CEO. After studying business or economics, they tend to join a major auditor, bank or consultancy, or perhaps a graduate scheme at a big corporation. About a quarter gained an MBA to aid their progression through the ranks.
The few who took less conventional routes include Andy Bird of Pearson, who started his career as a radio producer before moving to media giants Warner Media and Walt Disney; Michael Murray, an estate agent who was installed as Frasers Group’s CEO aged only 33 by his father-in-law, Mike Ashley; and Emma Walmsley of GSK, who studied classics at Oxford.
“Publicly listed businesses tend to play it safe. This is because they have to be able to justify their appointment to the shareholders,” notes Oona Collins, executive leadership coach and CEO of Potential Plus International.
Being a loyal servant helps: of the 65 CEOs who were appointed internally, half had been with their company for more than a decade.
Numerous others will be brought in at a senior level before being promoted to the top job. For instance, Dr Charles Woodburn became CEO at BAE Systems just over a year on from joining the company as COO.
This is becoming a popular approach for blue-chip firms, according to Collins. “It gives the future CEO a chance to assess the challenges, understand them and start making changes that may be needed in a more subtle way,” she says.
Lucy McGee is an expert in succession planning and a senior client partner at Korn Ferry’s board practice. She believes that it “reflects much better on a board to have some internal options when a CEO resigns”.
She explains: “The numbers suggest that you get a longer tenure and better shareholder returns from an internal appointment. It also sends a powerful message to other senior people in the organisation that there is a point in staying. The biggest businesses will have career development plans that will deploy potential leaders in different places to help broaden their experience as early as possible.”
McGee observes that external appointments are more likely if the business is “floundering”. A radical change in direction for the business can make an outsider’s perspective “very valuable”, she says. “This indicates to the shareholders that the company is going to do something really different.”
Since the start of the Covid-19 pandemic, external appointments have become twice as common. Some incoming CEOs have been clear about their change agendas. Tufan Erginbilgic started his tenure at Rolls-Royce this way in January. A newcomer to the aerospace industry, he warned staff at the company that the business was a “burning platform” on its “last chance”.
In the future, boards may start to cast their nets wider. Although CEOs with backgrounds in finance and operations dominate the FTSE 100 at present, Collins believes that more CMOs and CTOs will be appointed to the top job as marketing and digital know-how become more crucial.
Next in the series, read about how much FTSE 100 CEOs are paid.