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Why the Worst Times May be the Best Times for Succession

Executives hired during bust years stayed longer and performed better, according to a new assessment of the mining sector.

When times are good, boards tend to bask in their newfound success by splurging on superstar leaders. They may be better served waiting until the party stops.

CEOs hired during bust times are generally cheaper, and, according to a new analysis, will probably stick around longer—and could even do a better job to boot.

Recruitment firm Egon Zehnder’s research focused on mining—perhaps one of the most greatly exposed sectors to boom-and-bust cycles. It’s going through a major transition right now, as China’s appetite for commodities cools.

The research involved studying the price movements of copper between 2000 and 2015. The data was coupled with a sample of 319 executive candidates—including but not limited to CEOs—that the consultancy helped recruit over a similar time frame.

“THEIR EXPERIENCE NAVIGATING TOUGH CIRCUMSTANCES EQUIPS BUST YEAR HIRES WITH MUCH-NEEDED SKILL SETS TO MANAGE THE INHERENTLY VOLATILE AND COMPLEX NATURE OF THE INDUSTRY.”

 

They discovered that bust cycle executives had an average tenure of 4.6 years, while boom cycle executives stuck around for 3.8 years. Bust hires, other than the CEO, also were  more likely to advance in their careers, with 47% being promoted at least once, compared to 37% for boom hires.

“Their experience navigating tough circumstances equips bust year hires with much-needed skill sets to manage the inherently volatile and complex nature of the industry,” the report’s authors, Edilson Camara and Sameera Sandhu, said.

The report didn’t attempt to apply its findings to other industries, which may be exposed to boom and bust cycles to varying degrees. Technological disruption, for example, is very much a structural rather than a cyclical change and would clearly have to be taken into account by boards in many sectors. That said, all companies are ultimately exposed to cyclical pressures as entire economies transition between good times and bad.

And when the going gets tough, either because of cyclical or structural challenges, new hires are exposed to the struggle of remaining profitable, the authors said. That means they’ll have to improvise and question the status quo, optimize costs and discover more creative and innovative solutions.

On the flipside, boom-time CEOs, at least in the mining industry, have tended to lose sight of declines in productivity and new ways of doing things. BHP Billiton’s Marius Kloppers, for example, exhausted much of his energy on pursuing complex mega-deals with Rio Tinto and Potash Corp. that never came to fruition.

To drive rapid expansions, booming companies often place a greater emphasis on hiring talent, usually at a premium, and then place new hires under pressure to meet their often lofty growth expectations.

Of course, not all executives hired during boom times perform poorly. For his part, Kloppers was intentionally selected to pursue an aggressive growth agenda, while his replacement, Andrew Mackenzie, was promoted due to his reputation as an efficient cost cutter.

Indeed, some executives are more inherently able to cope with different market environments owing to their own unique skills sets, though it’s debatable how much these qualities are the consequence of nature or nurture.

Whatever the case, it may help for boards and CEOs—whether planning their own succession or filling out the C-suite—to keep their powder dry and spread hires more evenly across the cycle.

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About Ross Kelly

Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.