From My View - A CEO's Perspective
For quite some time I have wanted to put forth my observations concerning the optimum tenure for a chief executive officer. These observations are based on a range of experiences during a career encompassing responsibilities in a number of organizations. Some of the offices held were chief investment officer, chief financial officer, chief operating officer, and chief executive officer. This has given me a unique perspective into the thought process and workings of a board, plus experience of working with a board and responsibility for running a publicly traded corporation.
This article is written to provoke and stimulate thought in the minds of board members and CEO’s. The intent is to create serious introspection in the before-mentioned individuals of what is really best for their stockholders. The thesis set forth for consideration is that, with few exceptions, the vast majority of CEO’s should limit or be limited to a term of no more than ten years. It asks whether or not after ten years, a CEO has imparted the maximum benefit he or she can impart to the enterprise they are leading.
The Question . . .
Various CEO’s may take exception to this thesis. The real question is whether they are serving the needs of the stockholders or their own. It is extremely difficult to give up trappings and benefits of office along with the attendant salary to make such a move. Surrounded usually by substantial stock options, large stock holdings, and a generous salary, it is difficult to put the long-term interest of the stockholders in proper perspective vis-a-vis the CEO’s.
The Board . . .
Regarding the CEO’s relationship with the board, after ten years several things have occurred. One of the most disconcerting is that the CEO by then has handpicked the board. The majority of board members is now very comfortable in their positions and have lost some of their independence. They have developed a tendency to endorse pet projects of the CEO even though those projects may divert both intellectual and financial resources away from the company’s goals. In addition, by then, the CEO is often on many of his/her board member’s boards. This in turn makes it extremely difficult to oppose the CEO. In the process, a “good old boys club” has been created that blurs the board’s fiduciary responsibility to the stockholders with that of loyalty to the CEO.
The CEO . . .
Like the board, which the CEO now controls, those reporting to the CEO are now imbued or inculcated with the CEO’s thought process. Corporate politics have reached a high degree of sophistication and there is little room for iconoclasts. Subordinates know their roles and what the CEO likes, dislikes, his or her philosophy, prejudices, and what pleases him or her. In other words, the CEO has now reached the point of executive infallibility, particularly in his or her mind.
The excitement and enthusiasm which the CEO had when he or she assumed the job and the new ideas and vitality he or she brought to the job no longer exists to the same degree after ten years in the office. In addition, dramatic changes will have taken place in the economy and industry of which they are a part. No greater evidence of this is the information technology revolution that occurred during the 90’s - a revolution led by young, aggressive, irreverent, risk-taking entrepreneurs. Absent from this sea change in the economy were the majority of America’s CEO’s. It was not a period of “business as usual”.
Comfort vs. Change
Finally, the comfort index is such that there is a reluctance to embrace change or take risk. It is very comforting to not “rock the boat.” When things are going well - why change? Change brings risk and with it, the possibility of failure. Why damage a successful career by taking risk. Failure is anathema to most CEO’s who have worked so assiduously to develop their reputations. The result is an organization content to maintain status quo. In the process the CEO effectively robs the company of talented people as there is no opportunity for true change or advancement.
Note particularly that nowhere is it suggested that the CEO has failed or done a bad job. It simply suggests that for a company to remain dynamic, new fresh leadership is warranted. It is time for the outgoing CEO to turn over the helm to new leadership.
The United States electorate has, in their collective wisdom, imposed tenure of only eight years for the President of the United States. History indicates that this has indeed been a wise decision for a variety of reasons, many of which are common to all CEO’s and their subordinates.
For Your Consideration . . .
Finally, instead of summarily rejecting this thesis, carefully consider it. To board members - are you really doing what is in the best interest of the stockholders - or the CEO’s. To CEO’s - whose primary responsibility is the advancement of the shareholder’s interests - after a decade in office, is it time for new leadership?
Former Executive Coach