You can stay too long in a job, that's for sure. But by the same token, in the 12 years I have been CEO of GE, there have been four CEOs of Toshiba. So there's too short a time to do it, and there's too long a time to do it.” - Jeffrey R. Immelt
One of our members reminded us of this quote in a recent Syndicate meeting, where the topic of discussion was the appropriate length of a CEO's term.
Is there an ideal time limit for a CEO's reign? Should there be a schedule for CEO terms?
There is no simple answer to the question of CEO tenure. A firm can perform well with leaders enjoying a wide spectrum of terms of office. But the most common opinion of the CEOs in the meeting was the period of maximum effectiveness in this stressful role is around seven years. They also felt that the nature and challenges of the job evolve over time, going through three distinct phases:
- The Honeymoon Period
This is the period when they are most willing to learn, experiment and innovate. It's also the point at which a CEO is prepared to take risks and make major changes, particularly if brought in as an outsider. As should be expected, during this time they’re unlikely to perform at full potential. They have many new things to be assimilated with and they need to gain control over a new environment, get to know various constituencies and get the right people in place to make it happen.
After a new CEO has established what their leadership is all about, in terms of direction, strategy and style, the second phase of consolidation sets in. If everything has gone well, they will start to feel secure in their role as the fruits of their work in the honeymoon phase start to show. Alliances with key stakeholders are established and top executives are committed to the course the CEO has chosen. There's a good working relationship with the Board. The traps here, of course, are complacency and rigidity; as they approach the end of this phase, some CEOs start to resist even minor changes.
It's during this phase that a CEO starts having problems. Usually, the CEO has reached this stage when the enterprise has few or no new products planned for the near future and there are no initiatives to find new markets. There is no new blood coming into the top ranks of organisation and everyone sings to the CEO's same old tune. The company is probably accumulating a lot of cash because top executives are running out of ideas about how to use it. They may have stopped listening to other people's ideas. The job has become routine. Performance is slipping. In a fast paced industry, the problems tend to become apparent quickly; declining CEOs in a relatively stable environment may get away with it for longer.
So what should be done when a CEO hits the decline phase?
Businesses require active, passionate leaders who have what it takes to win. Ideally, the CEO acknowledges on their own accord his / her increasing ineffectiveness, and looks for new horizons when the going is still good. But how?
Our members agreed on 4 key considerations that every CEO should remain cognisant of to ensure they are aware of the phase of their tenure:
- Are you enthused and energised by climbing the next mountain? Is your heart and soul still in the game? Are you certain you'll be able to finish what they start?
- Do you have what it will take and a specific plan to learn what you may lack?
- Have you been successful recently? Have you been able to deliver on your intentions?
- Do your aspirations as a leader still align with the destiny of the business?
If the answer is 'NO' to more than one of these questions, then potentially it is time for a rethink.
Many CEOs though find it very hard to accept that this time has come. This is when a Board needs to step up, or if you're the owner of the firm and you're the problem, then logically, you should fire yourself and hire a better CEO!
The CEO Institute was founded in 1992. It is now Australia's leading membership organisation for CEOs and senior executives. It provides a forum for over 1,000 Chief Executive members to connect and share their learning with each other. In 2011, The CEO Institute became the world’s first global certification body for CEOs, and in 2013, partnered with UNESCO in support of the "Malala Fund for Girls' Right to Education". In 2014, they began offering their programs globally.
The CEO Syndicate is an exclusive peer support network for CEOs. The first meeting of The CEO Syndicate program was held in Melbourne in June 1992. Offices were opened in Adelaide in 1996 and Sydney and Brisbane in 1997, with Perth launching in 2007. In 2015, the New Zealand office opened.
The Future CEO program is a certification course designed by the business leaders of today for the business leaders of tomorrow. The first Future CEO meeting was held in Melbourne in May 2012. In 2014, the "Future CEO Scholarship Fund for Women" was established, and continues to be offered today.
Membership of The CEO Institute is by invitation only. To register your interest, click enquire.