The numbers behind Britain’s business leaders

Chief executives are a rare breed. The chosen 100 in charge of the UK’s largest listed companies are responsible for £1.9tn of equity. With such assets at their disposal, it’s not an exaggeration to say some chief executives are among the most powerful figures in our society. And just as citizens of a democracy demand transparency from their politicians, so too should investors in a listed company from their board of directors.

But how were these leaders chosen? How experienced are they, and how are their ranks changing? To find out, Investors’ Chronicle crunched the numbers on the chief executives of the UK’s largest listed companies to get a sense of who this select group of people are.

Chief executives tend to be promoted from within a company rather than from outside it – at least at the UK’s biggest businesses. IC analysis shows that 70 per cent of the current FTSE 100 chief executives were internal hires instead of being recruited from elsewhere.

Some internal hires are much more internal than others. While five FTSE 100 bosses joined as non-executive directors not long before being appointed chief executive, over a third of internal hires had been with the company since early in their careers. And National Grid’s (NG.) John Pettigrew and IMI’s (IMI) Roy Twite joined their respective companies as graduates.

Family connections led five other FTSE 100 chief executives to join their respective companies early in their careers: Associated British Foods’ (ABF) George Weston, Bunzl’s (BNZL) Frank van Zanten, Next’s (NXT) Simon Wolfson, Smurfit Kappa’s (SKG) Anthony Smurfit, and Frasers’ (FRAS) Michael Murray. Incidentally, Wolfson and Murray are two of the youngest to have been appointed chief executives of a FTSE 100 company. They are beaten only by Ocado’s (OCDO) Tim Steiner, who took charge of Ocado 23 years ago aged 31 – by dint of founding the company with two fellow former Goldman Sachs colleagues.

The only other FTSE 100 chief executive who helped found their company was Dechra’s (DPH) Ian Page, who joined six other directors in a management buyout of the business that would become Dechra in 1997.

There are other stories in the hiring data. Aviva’s (AV.) Amanda Blanc was an external hire, but did in fact begin her career at Aviva as a graduate before going elsewhere. Whitbread’s (WTB) Dominic Paul was also an external hire, but he was once managing director of Costa at a time when Whitbread owned the coffee chain. He then went on to become chief executive of Domino’s Pizza (DOM) before returning to Whitbread as chief executive.

Paul did this jumping around – from Whitbread to Domino’s and then back to Whitbread – over the course of less than three years. Compare that with the likes of Ocado’s Steiner, Next’s Wolfson and Dechra’s Page. All three have been chief executives of their companies for more than two decades – albeit they are the only three to have done so.

Short shrift

On balance, though, Paul’s story is becoming more common. Our analysis of the FTSE 100 – which, because it excludes three investment trusts, amounts to 97 companies – found their mean average age is 55, their average age when appointed chief executive is 50, and their average tenure is 5.4 years. This average is also skewed by the longer-serving members – the trio mentioned above, along with another 14 who have been in place for a decade or more. The median tenure is just 3.75 years, meaning that only half of current large-cap bosses were in their roles prior to the pandemic.

AJ Bell investment director Russ Mould says the popularity of the five-year tenure is something of a recent phenomenon.

He suggests the numbers are skewed by the events of 2020, when the panic of the pandemic led to a record-high turnover in FTSE 100 chief executives. Since then, however, turnover has remained historically high. Mould says the danger of shorter tenures is a “misalignment” between investors’ mentality, most of whom he says want to invest in companies for eight years or more, and the mentality of chief executives serving five-year terms. Such chief executives may end up making decisions that benefit the company in the short term, but that rank badly on a 10 or 15-year timescale.

Mould adds that good succession planning and “leaving a legacy” can help mitigate these investor concerns, which is why internal hires can be a good sign. But there is also a risk to chief executives serving too long. PwC analysis found that successors following long-serving chief executives tend to struggle. There are several potential reasons for this. Even if a long-tenured chief executive steps down, their presence might still be felt – especially if they hang around on the board – which can undermine the new recruit’s decisions. The other problem is that hanging around too long might mean that suitable replacements leave. One chief executive of a FTSE 350 company says they know of more than one recent example of this happening in the world of real estate investment trusts.

THE LONGEST-SERVING FTSE 100 CHIEF EXECUTIVES
Company	Name	Age	Tenure (years)	Age appointed
Ocado (OCDO)	Tim Steiner	54	23	31
Next (NXT)	Simon Wolfson	56	22	34
Dechra (DPH)	Ian Page	62	22	40
Associated British Foods (ABF)	George Weston	59	18.5	41
Relx (REL)	Erik Engstrom	60	14	46
Berkeley (BKG)	Rob Perrins	58	14	44
DS Smith (SMDS)	Miles Roberts	59	13.5	46
Segro (SGRO)	David Sleath	62	12.5	50

 

Across the pond…

The picture in the US is similar: the median age of a Russell 3000 chief executive is 57, according to non-profit organisation The Conference Board, compared with 56 in the FTSE 100. For incoming chief executives, there is a bigger gap: 55 in the Russell 3000 compared with the FTSE’s 51. The fact that the Russell 3000 is an all-cap rather than large-cap index (with a median market cap equivalent of £1.6bn compared with the FTSE 100’s £7bn) arguably makes this more surprising.

One reason may be that the pace of turnover is faster in the UK. Data from consultancy Equilar cited by the Harvard Law School puts the median tenure for S&P 500 companies at 4.8 years as of 2022. But in the US, too, this figure has been dropping, having been 5.2 years in 2019, the year prior to the pandemic.

US company heads are also similarly likely to be internal rather than external hires. In 2023, two-thirds of Russell 3000 bosses were hired from within the company rather than from outside. As with the FTSE 100, many of the internal hires are also ‘lifers’, with the average internal hire having spent over a decade at the business before getting the top job. There are those who do both, most obvious being Nvidia (US:NVDA) co-founder and chief executive Jensen Huang, who has been in charge of the company since it began life in 1993.

 

Pale, male and stale?

What of diversity? In the FTSE 100, only nine companies have women chief executives. Progress on this front has been extremely slow. Marjorie Scardino was the first woman to become a FTSE 100 chief executive in 1997, when she became chief executive of Pearson, a role she held until 2012, at which point the number of women chief executives in the FTSE 100 had risen to five.

In the US, although women still make up a paltry number of the Russell 3000’s chief executives, their number has risen from 132 to 194 between 2017 and 2023. And the rate at which women are becoming chief executives is increasing at a greater pace each year. In 2017, just 4.3 per cent of incoming chief executives were women. In 2023, it was 11.6 per cent.

AJ Bell’s Mould hints that something similar may be happening in the UK. He observes that of the 23 changes made to chief executive ranks this year – including those who have yet to start their role – four are women.

Evidence of progress on ethnic diversity is uncertain, partly because the methodology on measuring the data has changed. According to the government-commissioned Parker Review, nine chief executives or chairs in the FTSE 100 were none-white in 2016. In March 2023, the Parker Review modified the way it surveyed companies on ethnicity, instead asking respondents to self-identify whether they were from an ethnic minority background. According to those results, seven FTSE 100 chairs or chief executives said they were from ethnic minorities. The current figure may be different, given the number of chief executives who have resigned or taken up their posts since the survey was conducted.

In the US, the percentage of white chief executives has actually increased from 82.6 per cent in 2017 to 89 per cent in 2023. However, just as with the FTSE 100, this could be the result of a change in the quality of the numbers. In 2017, 99.2 per cent of Russell 3000 companies did not disclose ethnicity data compared with 87 per cent in 2023. As the data becomes more transparent, the picture may simply be growing more accurate.

On a director level, where the sample size is larger, the pace of change is easier to measure – in the UK, at least. In 2016, the Parker Review found 8 per cent of FTSE 100 directors were non-white whereas, in 2023, 18 per cent of FTSE 100 directors identified as ethnic minorities. Notwithstanding the change in methodology, it represents a sea change in the ethnic diversity in FTSE 100 boards. The government-commissioned FTSE Women Leaders report found similar progress on gender. In 2011, women held just 12 per cent of FTSE 100 board positions. In 2022, they held 41 per cent.

The real difference in chief executive profiles emerges not when the UK is compared with the US but when larger listed companies are compared with smaller ones. According to the Women Leaders report, the number of women in large-cap index executive committees or directly reporting to them increased to 34.3 per cent this year, up from 32.5 per cent last year. In the FTSE 250, the figure was 33 per cent, up from 30.7 per cent last year. The difference between the large-cap and the mid-cap index is marginal, but it is also consistent over the years. The FTSE 100 is also more ethnically diverse than the FTSE 250. The 18 per cent of FTSE 100 directors from ethnic minority backgrounds compares with 11 per cent for mid-cap companies. As with women, the FTSE 100 has recorded better progress on ethnicity than the FTSE 250 in every year the survey has been done.

One of the reasons for this phenomenon could be increased scrutiny. As a company becomes larger, it becomes more visible and so investor and public attention to its hiring decisions increases. This underlines the reason why crunching the numbers – all kinds of numbers – on chief executives matters. A company is only as good as the people who run it, so investors deserve to know more about who those people are.