Business / Economy

'Revolving door' at firms in China

By CAI XIAO (China Daily) Updated: 2015-04-17 09:13

Turnover among chief executive officers in China was the highest in the world last year, and the rate of change may remain high this year as the reform of State-owned enterprises moves forward and the anti-corruption drive continues, according to a study by Strategy&.

Strategy&, a management consulting arm of PricewaterhouseCoopers LLP, surveyed the world's top 2,500 listed companies, defined by market capitalization as of Jan 1, 2014. The study included 193 companies from China.

The CEO turnover rate globally was 14.3 percent in 2014, compared with 14.2 percent in 2013. In China, the rate fell from 16.9 percent in 2013 to 15 percent in 2014.

Despite the decline, "China's CEO turnover rate in 2014 was higher than any other region in the world", said Xu Huchu, president of Strategy&'s greater China operations.

"China's CEO turnover is becoming more market-oriented, but shareholder value will be reduced in the short term," said Xu.

The report said that a change at the top, for whatever reason, means lower shareholder returns in the following year.

Xu said that turnover in the top suite in China will remain high this year for three reasons: SOE reform is only beginning, more anti-corruption moves will be carried out at SOEs and market pressure is higher.

The report found that companies where CEOs have been forced to depart cost investors $112 billion globally.

"To improve CEO succession, boards first need to take responsibility for the succession process to build a robust, sustainable executive pipeline," said Xu.

"Second, boards should always have a plan for succession. And third, executive human resources processes should reward managers who contribute to the development of talent."

The report also said the proportion of insiders assuming the CEO position last year was highest at companies in China and Japan-92 percent in both cases. But Xu said the proportion might fall this year in China amid SOE reforms, an economic slowdown and market pressure.

The report also said companies in China had the second-highest percentage of female CEOs in the world between 2004 and 2014, at 3.1 percent.

"With a more open business environment and economic structural change in China, women leaders are playing a bigger role in companies," said Xu.

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