(ECNS) -- Forced turnover of CEOs in top public companies has incurred losses of $112 billion while more firms now tend to choose top executives through internal promotion, a report shows.
Conducted by consulting firm Strategy&, "The 2014 Study of CEOs, Governance, and Success", is based on the analysis of CEO turnover during the last three years.
It found that median total shareholder return (relative to the indices on which companies trade) drops to -3.5 percent in the year after a turnover takes place.
Per-Ola Karlsson, a senior partner at Strategy&, said there are substantial costs to firing a CEO, and a smooth succession in this senior position brings greater benefits.
The report shows that companies can add some $60 billion in shareholder value if the total share of forced turnovers is stabilized at 10 percent, from the average 19 percent between 2011 and 2013.
Each company that has undertaken a forced turnover has foregone an average $1.8 billion in shareholder value compared to companies that have executed planned successions, according to the report.
The good news is that the share of planned turnovers (instead of forced) has improved from 63 percent between 2000 and 2002 to 82 percent from 2012 to 2014.
The report also found a growing tendency to select CEOs through internal promotion. In 2014, 78 percent of companies undertaking a succession process chose a leader from among its employees, rather than by hiring an outsider.
Forced turnovers of CEOs hired from outside is 44 percent higher than for internal appointees.
In China, the CEO turnover rate was 15 percent in 2014, a slight drop from 16.9 percent in 2013. In both Chinese and Japanese companies, top executives promoted from within were as high as 92 percent of the total.
