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Keep it moving: Is shorter CEO tenure better?

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Crystal Spraggins, SPHR

The 5-year plan

For decades, the 5-year business plan was touted as a necessary and extremely valuable tool in the well-run organization’s tool belt. A 5-year plan keeps a company on track, by guiding leadership’s decision making about everything from infrastructure to marketing strategy.

But then business started changing at the near speed of light (or at least much faster than many organizations were keeping up), and somebody suggested we should all rip up our 5-year plans (with the idea that they restrict innovation), some others declared that a pretty good idea, and well, it was probably only a matter of time before it was suggested that shorter CEO tenure might be pretty cool, too. Forget about the commonsense view that there’s benefit in longevity. Hit and run is the new CEO trend.

Kind of

A recent article on Workforce.com, “With CEO Tenure, Short is Sweet,” quotes Brian Kropp, Managing Director at the Corporate Executive Board, as saying it’s no longer realistic to expect a single person to possess the skill set necessary to be an effective leader for two decades. In fact, when the Corporate Executive Board surveyed top HR officers about CEO succession plans, HR reported that 32 percent of Boards believe the current CEO is no longer “the right person for the job.”

In “Long CEO Tenure Can Hurt Performance,” Luo et al offer an explanation for why longer tenure might not be as effective:

“Early on, when new executives are getting up to speed, they seek information in diverse ways, turning to both external and internal company sources. This deepens their relationships with customers and employees alike.”

But as tenure increases, Luo et al report, CEOs rely more and more on internal sources of information, which makes them less in tune to the market.

And that’s not even the worst part. The longer a CEO stays, the more risk averse he or she becomes, because now there’s simply too much at stake. As a result, “… [a] company’s performance diminishes, no matter how united and committed the workforce is.”

Still, somebody’s doing something right, because the Conference Board reports that average CEO tenure is 9.7 year (a number mostly attained by a reduction in CEO firings), and that’s actually up from 8.1 years in 2012.

What does it all mean?

Here’s my take:

  • It’s important to regularly evaluate CEO performance and take deliberate steps to ensure the top guy or gal hasn’t become too mired in the status quo to be effective.
  • Succession planning is a must.
  • Trends come, and trends go. It’s interesting to read about trends, but more important than trends is: what does your organization need?
How well is your organization succeeding? Find out the telltale signs that it might not be in this PayScale whitepaper: "Is Your Company in Decline? The Five Telltale Signs"

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