By Sarah Woods and Lisa Sprenkle
The Great Resignation made headlines in 2021, as employees dissatisfied with work-life balance and other job-related factors voluntarily left their roles in search of greener pastures. Today, the financial sector stands on the brink of its own Great Resignation—this one led by the executive suite. The average tenure of finance CEOs in the S&P 500 is nearly 11 years (the longest of any sector), and many are approaching retirement age or have the option to move onto their boards of directors.
Recent data supports this predicted mass CEO exodus, with a 47 percent increase in CEO departures in the first nine months of 2023 compared to the same period in the previous year. This surge, spanning across banking, insurance, asset management and private equity marks the highest rate of CEO turnovers since records began in 2002. Long-standing CEOs provided stability during the pandemic by maintaining consistency, helping retain talent and navigating the remote and hybrid work environment. Now, these CEOs, fatigued from that level of operational leadership, are taking advantage of stronger earnings and a more stable economy to finally move on from the role. As a wave of CEO departures looms, the financial industry is on the verge of a major leadership shift.
In our consulting with financial services companies across geographies, we hear from boards and management alike that the landscape is filled with more disruption than ever. Why? In addition to the cross-sector challenges of geopolitical instability, persistently high interest rates and a slowing global economy, the banking sector continues to face unique headwinds in generating income and managing costs. Tighter regulatory controls combined with the pace of new technology means banks and other financial services companies need to shift how they operate to reach and serve customers. The industry must place bets on future leadership to steer their companies in more agile and innovative ways.
Despite the high stakes, more than half of CEOs and board members are not at all confident or only somewhat confident that their CEO succession planning is positioning the organization well for the future. The same CEO profile that stabilized the company during the global upheaval of the pandemic and racial and social reckoning is now considered table stakes for future CEOs. Not only will they need to draw on greater emotional intelligence, but they now face unique challenges related to the rapid adoption of generative AI and uncertainty in the geopolitical order, both impacting how they scenario plan and target growth. Financial firms that have not updated their CEO profiles in the past six months are looking for the wrong candidate.
Furthermore, firms that have not developed a strong slate of internal successors are relying on executive recruiting firms to scan similar companies in the sector for available potential candidates. Of course, these recruiters are hunting for executives in companies working to retain their own key successor talent. While external CEO placements can be productive for companies seeking a strategy refresh, in too many cases, they are a default move by boards due to insufficient internal bench strength—and they come with high risks. A poorly placed CEO successor is costly and disruptive, eroding the confidence of investors, employees and customers. BTS has found that comprehensive succession planning is paramount, where boards assess not only the next CEO, but also the broader management team’s readiness. The transition must ensure continuity while infusing fresh perspectives to drive innovation and adapt to a rapidly changing landscape.
As financial firms develop and recruit the next level of leadership, there will be greater emphasis on transparency and board involvement in succession planning. Boards will play a more active role in assessing potential risks and evaluating candidates’ alignment with stakeholder values and company culture. For example, our firm worked with the board of a global financial services firm to provide best practices oversight on the approaches their management team was taking to secure a strong bench of talented successors. Their goal was not to undermine management efforts but to ensure they had mitigated all risks in CEO succession as part of their fiduciary responsibility. The board’s willingness to be open and transparent about succession planning, not just for the CEO but also for the executive team and the bench below, is crucial.
The financial sector must not view the looming leadership turnover as a challenge but as a call to action. It’s time for firms to boldly invest in internal leaders who will champion a new era of innovation and growth. This is a moment for the finance industry to lead by example, demonstrating that it is not only responsive to the changes around us, but also proactive in shaping a more resilient future.
Sarah Woods is a partner leading the CEO succession practice for BTS Boston, a global firm that improves the performance of organizations through communicative leadership. Lisa Sprenkle is an executive advisor and consultant with BTS Boston. She partners with clients, from nonprofits to global Fortune 100 companies, to develop outstanding leaders and effective teams for positive organizational impact.
