Saudi companies are increasingly hiring outsiders as CEOs

In a depressed economy, employers usually play it safe: they’re often willing to give their own employees a chance to take up top positions.

But in Saudi Arabia, it’s a different story.

Even though oil prices have plunged to record lows and the economy posted a deficit of $98 billion last year, companies in the oil-rich kingdom are increasingly hiring CEOs from outside the company as part of planned successions, according to new research.

This suggests that hiring an outsider has become more of an intentional leadership choice than a necessity.  

These and other findings were part of a CEO Success study from Strategy&, formerly Booz Allen Hamilton, part of the PwC network.

The research also found that outsiders accounted for 22 percent of all CEOs recruited via planned successions between 2012 and 2015, up from 14 percent in the period from 2004 to 2007.

“Hiring an executive from outside a company to serve as CEO used to be seen as a last resort. That is not the case anymore with the disruptive market-related changes that companies are facing today,” said Per-Ola Karlsson, a partner at Strategy&. 

“While an internal CEO candidate may have an excellent record of achieving the business goals the company has pursued in the past, boards are recognizing that this candidate may lack the skills needed to lead the company through the changes necessary to win the future,” Karlsson added.

MANAGEMENT OF CHANGE

One of the major corporate moves in Saudi Arabia included Shariah-compliant banking giant Al Rajhi’s appointment of Steve Bertamini as CEO in May 2015.

Bertamini previously held the position of Group Executive Director and CEO for Global Consumer Banking at Standard Chartered PLC.

Aramco, the world’s biggest oil firm, named Amin al-Nasser President and CEO in September 2015 as part of leadership changes overseen by a newly created supreme council headed by the King’s son.

However, Nasser had worked with Aramco as Senior Vice President for Upstream Operations before taking up the position of CEO.  He was named interim CEO, replacing Khalid Al-Falih, who became Chairman and Health Minister.

The recent political and economic developments in the kingdom are seen as reasons for the increasing trend of introducing an outsider as a CEO. 

“Oil price volatility and leadership changes have led to a shift in how Saudi Arabian leaders think about, approach, and successfully execute the new agenda of the country and where several private sector CEOs have taken on ministerial or other senior roles in the government," Karlsson explained.

TRENDS IN THE MIDDLE EAST

The Middle East continues to have one of the highest succession rates and hires the highest number of outsider CEOs, most of whom are part of planned successions, Strategy& said.

Last year, 21 percent of the 62 largest listed Middle East corporates saw a new CEO take the helm, which is above the global average of 17 percent. The majority of these cases had planned CEO succession events from outside the company.

According to the survey, these high succession rates in the Middle East are the result of above-average CEO transition rates in Saudi Arabia, where 38.5 per cent of Saudi corporates chose to introduce a new CEO in 2015. 

In the last four years, 58 percent of all CEOs in the Middle East have been outside hires, up from 33 percent in the previous four-year period.