How Long Should a CEO’s Tenure Be?
Some CEOs remain at the top of an organization for decades, whereas others don’t make it past their first year. What’s the business case for short and long tenures?
CEO tenure is getting longer. Equilar Inc., an executive research and benchmarking firm, studied S&P 500 companies and found that average CEO tenure has grown from 6.6 years in 2004 to 7.4 years in 2014 to 8.1 years in 2015. Among these companies, some CEOs face a tenure of less than one year and others whose tenure spans decades.
What should a CEO’s tenure be?
There is no cut-and-dry answer, as many factors determine CEO tenure. “Ultimately, you have to be able to see that progress and feel effective to have a chance to be successful,” said Kevin O’Reilly, CEO and founder of Orbital Shift, an online workforce management company based in Missoula, Montana.
Organizational growth and transformation play a big determining role. Firms at different points in a business lifecycle require different qualities in a leader. “Through those growth stages, just like anything, you need different skills and talents to be effective and have performance at that job,” O’Reilly said.
The Case For Long Tenures
Maintaining the status quo, for instance, may not require a change at the top, O’Reilly said. Moreover, firms without a clear succession plan also are likely to keep their bosses longer.
Unfortunately, most firms are woeful when it comes to CEO succession. A 2014 survey by the National Association of Corporate Directors showed that two-thirds of U.S. public and private companies have no formal CEO succession plan. And according to research from executive search firm Korn Ferry, just one-third of the executives whose companies have a succession plan said they were satisfied with it.
Some CEOs might stay on simply because they have the trust of the organization, which is a huge boost for a company’s culture, O’Reilly said. It’s hard for a business to have a trusted executive leave because they’re fearful of gaining one who isn’t. “The devil you know is better than the devil you don’t,” he said.
The Case For Short Tenures
A short tenure might occur when a CEO realizes they aren’t best for the next phase of the business. For example, a CEO might come on to do a major transformation of the business, only to realize that once that period is over their skills are less relevant for running an established operation. Therefore, it might be time for that chief executive to move on. This is more likely to happen in a startup environment, where company founders with little to no executive management experience step back into advisory roles in favor of a more seasoned manager stepping in to run the day-to-day operations.
“I feel like good leaders — the ones that are caring deeply and are connected with their employees on a day-to-day basis and really care about the culture, care about the employees succeeding — I think those types of leaders inevitably want to see their staff being risen up to different challenges and promoting from within,” O’Reilly said. “Those types of CEOs, you’re not seeing them stay at a position for extended periods of time.”
Other reasons for short tenures aren’t so warm and fuzzy. Transparency can be a good thing in some cases, but today it’s more prevalent than ever. This means CEO accountability is more likely to be on display, which may lead to more turnover at the top, said Robert Jordan, CEO of Association of Interim Executives, a talent scouting firm based in Northbrook, Illinois.
“It used to be in a pre-information-intensive economy that it was easier to hide,” Jordan said. “It’s a lot harder to hide now.”
Lauren Dixon is an associate editor of Talent Economy