In recent years, the duration of C-suite executives’ tenures has become a subject of growing interest and discussion. The traditional model of long-serving executives has shifted, giving way to a more dynamic environment where factors like performance, industry disruptions, and stakeholder expectations play significant roles.
A study by Equilar reveals that the median tenure among S&P 500 companies has decreased by 20% from six years in 2013 to 4.8 years in 2022. While the average tenure also declined during this period, the decrease was relatively modest. In 2013, the average CEO tenure stood at 7.6 years, dropping slightly to 7.2 years by 2022, representing a 5.3% decrease. This notable difference between median and average tenure suggests various factors are at play, including increased shareholder activism, faster business cycles, and the impact of disruptive technologies.
In contrast, the tenure of CFOs has remained relatively stable, with an average tenure of around 5.9 years in 2021, continuing into 2023. This stability can be attributed to the specialized nature of the role and the importance of financial continuity in organizations. Meanwhile, the average tenure for CMOs is even shorter, standing at 3.3 years as of 2022, declining from 4.5 years in 2021, indicating relatively lower turnover rates for CMOs compared to other C-suite leaders.
Real-life examples of declining tenure among C-suite executives in Forbes Global 2000 or S&P 500 companies include General Electric (GE) and McDonald’s Corporation, which have witnessed shorter CEO tenures in the last decade. This trend highlights the shift towards shorter CEO tenures in large corporations, as companies seek leaders who can quickly adapt to changing market dynamics and drive growth.
Key Trends and Considerations
In the last three years, there has been a noticeable shift towards shorter, more performance-driven executive terms. Companies are increasingly focusing on agility and adaptability, seeking leaders who can navigate rapidly changing business environments. This trend is evident in the increasing use of performance-based incentives in executive compensation packages, which tie a significant portion of executive pay to specific, measurable goals. In today’s competitive business environment, there is a greater emphasis on short-term results, leading to higher expectations for C-suite executives to deliver immediate and sustained growth.
Another trend is the rise of interim or acting executives, who are appointed for shorter terms to address specific challenges or transitions. These interim executives often bring specialized skills or experience that are needed for a particular situation, such as a turnaround or a merger. Factors affecting global trends, such as technological changes and shifts in stakeholder expectations, are also contributing to this trend.
The Case Against Long CEO Tenures
In the corporate world, longevity in a leadership role is often seen as a sign of stability and success. However, recent research and real-world examples suggest that there are compelling reasons why corporate chiefs should not stay in their roles for too long. One risk of a long CEO tenure is the potential for performance to plateau. CEOs tend to be most effective in their first few years, bringing new ideas, energy, and strategic direction to the organization. Over time, however, they may become entrenched in their ways, leading to a lack of innovation and agility.
CEOs who have been in their position for a long time may resist change and prefer to stick to familiar strategies instead of embracing new ones. This can stifle innovation within the organization and make it difficult for the company to adapt to a rapidly changing business environment. CEOs who have been in their roles for a long time may become more risk-averse, preferring to maintain the status quo rather than take bold strategic risks. While a certain level of caution is necessary, excessive risk aversion can prevent a company from pursuing new opportunities and growing.
Long-serving CEOs may delay or neglect succession planning, which can be detrimental to the organization when the time comes for a leadership transition. A lack of succession planning can lead to disruptions in leadership and uncertainty among employees, investors, and other stakeholders. Long-serving CEOs may develop strong relationships with board members over time, which can lead to a lack of independent oversight. This can result in a board that is less effective in providing constructive criticism and holding the CEO accountable.
Research has shown that there is an optimal CEO tenure that maximizes shareholder value. Beyond a certain point, longer CEO tenures have been associated with diminishing returns for shareholders, suggesting that there is a point at which fresh leadership is needed to drive value creation.
Considerations for Organizations and C-suite Managers
In light of these trends, organizations should carefully consider the optimal tenure for their C-suite executives. While long-serving executives can provide stability and institutional knowledge, shorter terms can bring fresh perspectives and faster decision-making. Ultimately, the ideal tenure will depend on the specific circumstances and goals of the organization. The short tenure of C-suite executives can have several negative impacts on organizations, including disruption in leadership, loss of institutional knowledge, costs of recruitment and onboarding, and impact on reputation.
Succession Planning is Becoming More Crucial
A study published in the Strategic Management Journal explored the impact of CEO succession on firm performance. The study found that planned successions, where a successor is identified in advance, are associated with higher firm performance than unplanned successions. This highlights the importance of succession planning in ensuring smooth leadership transitions. Organizations can also play a role in improving C-suite tenure. Implementing a strong onboarding process, setting clear expectations and goals, focusing on employee engagement, and conducting regular performance reviews can all contribute to longer and more effective tenures.
C-suite executives can take several steps to improve their tenure and effectiveness. Continuous learning and development, effective communication and collaboration, emotional intelligence and resilience, and involvement in succession planning are all key strategies. Lastly, the tenure of C-suite executives is evolving, driven by factors such as performance, industry disruption, and stakeholder expectations. Organizations that can adapt to these trends and find the right balance between continuity and change will be best positioned for long-term success.
