CEO Talent: America’s Scarcest Resource? 2017 CEO Talent Survey

CEO Talent: America’s Scarcest Resource? 2017 CEO Talent Survey

David F. Larcker, Nicholas E. Donatiello, Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, September

In the summer of 2017, Stanford Graduate School of Business and The Rock Center for Corporate Governance surveyed 113 directors of Fortune 250 companies and 18 prominent executive recruiters and compensation consultants that advise these companies to understand their views on the labor market for top CEO talent.

This research finds that the qualified pool of CEO talent to run the largest publicly traded companies in the United States is incredibly small, according to the directors who sit on the boards of these companies. The average director of a Fortune 250 company estimates that fewer than 4 people — including those both inside and outside their company — would be capable of stepping into the CEO role today and running it at least as well as their current CEO. They estimate that only 6 executives could perform as well as the CEO of their biggest competitor and only 9 would have the skills required to turn around a company struggling in their industry.”

Key Takeaways

  • CEO talent is exceptionally scarce
  • Tight labor market drives CEO Pay Higher
  • Boards face greater urgency to identify, develop and retain CEOs

“Almost across the board, directors of the largest publicly traded U.S. companies believe that the available pool of qualified CEO talent in their industry is small, the issue of ‘fit’ difficult to get right, and the downside risk of making the wrong choice high,” says Professor David F. Larcker of Stanford Graduate School of Business. “These findings have profound implications for talent development and CEO compensation: How you groom senior executives, how you plan for a CEO transition, and how you structure CEO pay really hinge on just how available replacement talent is.”

“Accurately assessing the scarcity of executive talent is one of the great ‘unanswered questions’ in governance,” adds Nick Donatiello, lecturer in corporate governance at Stanford Graduate School of Business. “The feedback we received from the very board members who are responsible for making hiring decisions is that the number of highly talented CEOs is very limited. Recent succession challenges at major corporations — such as General Electric, Walt Disney, and Uber — are indicative of an extremely tight labor market for CEOs. Frankly, there is a lot of pressure on directors to get it right. This likely results in directors being risk averse, which of course only serves to narrow their view of who might be acceptable.”

According to Brian Tayan, researcher at Stanford Graduate School of Business, “It is not just the size and complexity of the corporation that make succession difficult. A candidate might meet all the criteria in terms of background and experience, but it is still hard to tell whether they have what it takes to succeed. Corporations with a visionary founder have the added challenge of planning to replace CEOs who have in many ways come to define their organization.”

Key Findings

  • The labor market for CEO talent among fortune 250 companies is extremely tight
  • The CEO role is extremely demanding, and few have the necessary skills
  • Visionary founder ceos are much more difficult to replace than professional CEOs
  • Recruiters and consultants offer a modestly more optimistic picture of the CEO labor market