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Sarin's 5-year term below global average

May 28, 2008 20:04 IST
British telecom giant Vodafone's Indian-origin CEO Arun Sarin, who announced his surprise resignation on Tuesday, has fared worse than the global average when it comes to the tenure as chief of a company.

However, his five-year stint as CEO of the world's top mobile operator appears noteworthy, given telecom being the industry with highest CEO departure rate and Europe faring the worst on this parameter among all the geographic regions.

According to the latest annual study of CEO turnover rate by the global management consultancy firm Booz & Company, the global median tenure for a CEO who left office in 2007 was six years -- same as in 1995 and the average over past 10 years.

CEOs in the North America had the longest average tenure of 8.3 years in 2007, as compared to seven years in Europe.

"Europe offers the toughest environment for CEOs, while North American CEOs have the longest tenure," it said. The survey also found that CEOs are seldom dismissed for poor short-term results.

While announcing his decision to step down as Vodafone CEO in July, Sarin said in London that he had achieved what he had sought to at the UK telecom giant.

The company has not disclosed any specific reason for Sarin's exit, but his tenure has been marked with some intense shareholders' dissent. At the company's AGM in 2006, over 10 per cent votes had been cast against his continuation as CEO.

The Booz survey of the world's 2,500 largest publicly traded companies, whose release coincides with Sarin's resignation, found that the CEO turnover declined slightly in 2007, but remains at a high level.

The study is being published in the Summer 2008 issue of Booz & Company's quarterly magazine strategy+business, hitting the newsstands on June 10. The study revealed that counter to common perceptions, the worst-performing CEOs actually faced a low probability of being forced from office in the short-term.

Over the range of years studied, Booz & Company found that the average rate of a CEO getting fired specifically for poor performance was only 2.1 per cent.

The overall rate of CEO turnover which includes planned successions, dismissals, and merger-related departures fell in 2007 to 13.8 per cent, from 14.3 per cent a year before.

The rate of CEOs being fired also fell slightly in 2007, but remains high. Nearly one out of every three (30.4 per cent) departing CEOs was forced to resign due to either poor performance, ethical lapse, or disagreements with the board.

The rate of planned successions was 6.8 per cent in 2007, just over its average for the years studied.  In 2007, the overall turnover rate for European CEOs was 17.6 per cent, significantly higher than for those in North America (15.2 per cent), Japan (10.6 per cent) and the rest of the world (9.1 per cent). Europe's increase can be attributed largely to a planned succession rate of 8.3 per cent, compared with 6.8 per cent worldwide, it said.

The study said that the safest industries for CEOs include energy (5.8 per cent) and industrials (8.8 per cent). Industries with the highest level of turnover include telecommunications (21.7 per cent), information technology (17.4 per cent), and financial services (14.4 per cent).

"The two-year rule  the notion that boards dismiss CEOs after two or three disappointing years  is a myth," Booz & Company's senior vice president Gary L Neilson said, adding the boards are providing ample time for CEOs to develop and execute on their strategies.

One reason boards are taking several years to replace underperforming CEOs may be a lack of candidates who are ready and able to take over the top spot, the report noted.

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