As a leading executive talent and advisory firm, ETHOS, is aware of the dynamics at the top echelons of American businesses. In line with a comprehensive analysis of CEO transitions within the S&P 1500—comprising the S&P 500, S&P MidCap 400, and S&P SmallCap 600—offers invaluable insights into leadership changes, capturing about 90 percent of U.S. market capitalization. The 2023 report reveals a decline in CEO transitions across the S&P 1500 compared to the previous year, not yet rebounding to pre-pandemic levels. Notably, there’s a trend toward appointing older and more experienced CEOs, especially within the S&P 500, where nearly 20 percent of new CEOs have previously led public companies. However, beyond these statistics lies a deeper evolution in boardroom expectations. The changing landscape of global business demands CEOs who not only possess traditional skills like strategic thinking and result-getting but also exhibit the agility to navigate new challenges. Modern CEOs are expected to be systems thinkers, adept connectors, and agile operators, equipped with the empathy to engage diverse stakeholders and the innovative mindset to leverage information and talent ecosystems. This shift underscores the broader, more complex array of stakeholder demands and the rapid, interconnected pace of business challenges today.
CEO Transition Trends Summary
In a comprehensive analysis of CEO transitions across the S&P 1500 companies in 2023, several key trends and patterns have emerged, reflecting the evolving dynamics of corporate leadership and governance in the face of changing global business landscapes. The year saw a slight decline in the number of CEO transitions, with a total of 136 new CEOs appointed across the S&P 1500, down from 146 in the previous year. This indicates a cautious approach to leadership changes amidst ongoing economic, social, and geopolitical uncertainties. Notably, the trend towards appointing older and more experienced CEOs continued, with the average starting age of new CEOs reaching a 10-year high. This shift towards more seasoned leaders suggests a preference for those with extensive experience navigating complex business cycles during uncertain times. The majority of new CEOs, at 82 percent, are serving in their first public company CEO role, a trend that has been consistent over the past five years. This highlights a preference for fresh perspectives in leadership, even as some sectors, particularly consumer companies, show a higher likelihood of appointing experienced CEOs. The primary pathways to the CEO position remain through internal promotion, particularly from roles such as COOs and divisional CEOs, underscoring the importance of long-term succession planning and the development of leadership from within the organization. Gender diversity among new CEO appointments showed a slight decrease from the previous year’s historic high, with women representing 13 percent of the newly appointed CEOs in the S&P 1500. While the overall number of female CEOs remains low, there is a visible effort to improve gender representation in leadership roles, with the highest percentages of female CEOs appointed in small-cap companies and certain sectors like industrial companies showing a more significant share of women in top leadership positions. Furthermore, the practice of appointing an executive chair alongside the incoming CEO has seen an uptick, with 43 percent of new CEOs in the S&P 1500 being appointed in conjunction with an executive chair, mainly to ensure a smooth transition. This approach is particularly prevalent in the S&P 500 companies, where the outgoing CEO often assumes the role of executive chair, highlighting the emphasis on continuity and support during leadership changes. Overall, the trends in CEO transitions in 2023 reflect a nuanced approach to leadership succession, with a focus on stability, experience, and internal promotion, alongside a continued, albeit slow, progression towards greater gender diversity in the executive suite. These patterns underscore the complex considerations that boards face in navigating leadership changes in today’s dynamic business environment.
CEO Transitions Dip Slightly
In the dynamic landscape of executive leadership within the S&P 1500 companies, the pattern of CEO transitions in 2023 highlighted a cautious approach amid ongoing global challenges. Despite a promising start with the strongest first quarter of CEO appointments in a decade, the overall number of new CEO appointments in the S&P 1500 declined slightly from 146 in 2022 to 136. This cautious trend was particularly noticeable in the fourth quarter, suggesting that some CEOs may have extended their tenure in anticipation of economic recovery, while boards delayed succession plans due to macroeconomic, social, and geopolitical uncertainties. The dip in CEO transitions was not uniform across all indexes. The S&P 500 saw a decrease to 46 new CEO appointments from 56 in the previous year, indicating a more pronounced reluctance to change leadership amidst uncertainty. In contrast, CEO transitions within the MidCap 400 rebounded to 40, recovering from a decade low in 2022, while the SmallCap 600 experienced a slight decline. Historical trends suggest that CEO transitions tend to increase about two years following a crisis, as boards gain confidence in the stability and begin to refocus on long-term succession planning. This pattern appears to hold true for larger companies, though mid-cap and small-cap firms have shown varying responses. The sectors experiencing the most significant leadership changes in 2023 were consumer and healthcare, with an 11 percent turnover rate, reflecting the ongoing impact of external instabilities on internal company dynamics. Financial services witnessed the lowest turnover rate at 7 percent, underscoring a possible desire for continuity in sectors highly sensitive to economic fluctuations.
CEO Tenure is Falling, while starting age is increasing
In a significant shift within the S&P 1500 companies, 2023 marked a decrease in CEO tenure alongside an increase in the starting age of newly appointed CEOs, suggesting evolving dynamics in executive leadership. The average age of outgoing CEOs was recorded at 61.6 years, slightly younger than the 62.4 years reported in 2022, aligning with a recent trend towards younger retirements. Concurrently, the average tenure for these CEOs has decreased from 9.9 to 9.0 years, placing it at the lower end of the historical spectrum. This trend is even more pronounced within the S&P 500, where CEO tenure has steadily declined from a peak of 11.2 years in 2021 to 8.9 years in 2023, reflecting perhaps a pandemic-induced extension of service as companies sought stability through experienced leadership. Contrastingly, the age at which individuals are assuming CEO roles is increasing, reaching a 10-year high. For the entire S&P 1500, the average starting age for CEOs in 2023 was 56.2 years, notably higher than the previous peak. This trend is particularly evident in the S&P 500, with the average starting age rebounding to 56.4 years after a temporary dip in 2022. This shift towards older incoming CEOs could be interpreted as a preference for leaders with more experience and a greater number of economic cycles under their belts, especially valuable in times of heightened uncertainty.
Why are more CEOs leaving?
In 2023, the dynamics behind CEO transitions within the S&P 1500 largely mirrored previous years, with the majority of departures occurring as planned. A significant 86 percent of the transitions were due to CEOs deciding to retire, move to another role, or leave for personal reasons, maintaining the same level as in 2022. However, there was a notable increase in resignations under pressure, which doubled to 10 percent from 5 percent the previous year, with a marked rise among S&P 500 companies from 7 percent in 2022 to 16 percent in 2023. This uptick suggests a growing impatience with performance issues, as well as heightened expectations from boards and investors for CEOs to deliver results. Additionally, there was an increased focus on non-financial performance and stakeholder management, contributing to more CEOs leaving voluntarily or under pressure. This trend was particularly evident in S&P 500 companies, where the scrutiny from media and investors is more pronounced, indicating a shift towards greater accountability and transparency in leadership roles.
Divisional Operations Directors are being promoted to CEOs
The landscape of CEO appointments within the S&P 1500 in 2023 showcased a notable shift towards promoting internal leadership, particularly emphasizing the roles of Chief Operating Officers (COOs) and divisional CEOs. This trend underscores a strategic approach to succession planning, with 57 percent of the new CEOs emerging from COO or president positions, up from 43 percent in 2022. The rate of divisional CEOs stepping up to the top role also saw an increase to 24 percent from 17 percent the previous year, reflecting a preference for leaders with comprehensive operational or division-specific experience. The year marked a departure from the 2022 trend where CFOs saw a bump in CEO promotions; in 2023, CFOs accounted for just 5 percent of the transitions, a significant decrease from 15 percent. Similarly, “leapfrog” leaders, or those promoted from below the C-suite, constituted 5 percent of the appointments, a slight decrease from 9 percent in 2022, indicating a more cautious approach to such transitions. This evolution in CEO sourcing strategies suggests boards are investing in long-term succession planning, prioritizing candidates with a proven track record of leadership within the company. The COO role, in particular, emerged as the most common stepping stone to CEO, indicative of a preference for candidates with a broad operational perspective. Notably, “leapfrog” appointments were more prevalent among mid-cap and small-cap companies, highlighting a potential openness to unconventional leadership paths in these segments, contrasting with the more traditional paths observed in the S&P 500, where no leapfrog appointments were recorded in 2023.
Increase in First Time CEOs
In 2023, a significant majority of the S&P 1500 companies, at 82 percent, appointed individuals to the CEO position who were taking on the role of a public company CEO for the first time. This trend of predominantly first-time CEOs has remained consistent over the past five years, with some variability across different indexes. The S&P 500, for instance, saw 78 percent of its new CEOs as first-timers in 2023, a decrease from 93 percent in 2022. The MidCap 400 index showed a slight increase in first-time public company CEOs, rising to 88 percent in 2023 from 85 percent in 2022. The SmallCap 600 maintained a steady rate of 82 percent, mirroring the overall trend. This pattern is not surprising considering that almost all internal promotions result in first-time CEOs. However, the consumer sector stands out for its inclination towards appointing CEOs with previous public company leadership experience, as 31 percent of its new CEOs in 2023 had already served in such a capacity. This suggests that while the path to the CEO office varies across industries and company sizes, there’s a clear overall preference for fresh leadership perspectives, albeit with some sectors favoring experience over novelty.
Is Gender Diversity in CEO Hiring Changing?
In 2023, the pursuit of gender diversity among the leadership ranks of the S&P 1500 slightly receded from the previous year’s historic achievement, with women constituting 13 percent of all new CEO appointments, narrowly missing the 14 percent high mark set in 2022. This resulted in the total number of female CEOs within the S&P 1500 reaching 111, representing 7 percent of all CEOs across the index. The representation of women in CEO roles varied across the different segments of the S&P 1500, with small-cap companies leading in gender diversity: 14 percent of the newly appointed CEOs in the SmallCap 600 were women. In the larger S&P 500, women accounted for 11 percent of the new CEO appointments, a figure consistent with recent years, bringing the total number of active female CEOs in the S&P 500 from 38 to 40, or 8 percent. Notably, all female CEOs appointed in the S&P 500 were promoted from within the company, compared to 71 percent of their male counterparts. Sector-wise, industrial companies showcased the most significant progress towards gender diversity, with women making up 18 percent of new CEO appointments in this sector. The consumer and industrial sectors have emerged as leaders in female CEO representation, each boasting 9 percent active female CEOs. Meanwhile, the healthcare and technology, media, and telecom sectors saw a modest increase, with each adding one new female CEO. However, the technology sector remains at the lower end of the spectrum in terms of overall female CEO representation, highlighting an area for potential improvement in gender diversity efforts.
Boards are supporting transition with Executive Chair positions
In recent years, there has been a notable increase in the practice of appointing an executive chair during CEO transitions within the S&P 1500 companies, a strategy aimed at ensuring a smoother transition for both incoming internal candidates and new external CEOs. In a significant trend, 43 percent of the incoming CEOs were appointed alongside an executive chair, a move designed to bolster leadership continuity and support during the critical initial phase of their tenure. Mid-cap companies showed a more conservative approach to this practice, with only 30 percent opting for an executive chair during CEO transitions. The role of the executive chair is predominantly filled by the outgoing CEO, especially in larger firms. Specifically, 41 percent of CEO transitions in the S&P 500 involved the former CEO assuming the role of executive chair. This was less common among mid-cap and small-cap companies, where 20 percent and 28 percent, respectively, had the predecessor CEO serve as executive chair. Typically, the tenure of an executive chair is short, lasting between one to two years, underscoring its primary function as a transitional support mechanism rather than a long-term leadership position. This approach reflects a growing recognition of the value of stability and continuity in executive leadership during periods of change.
