The Forever CEO – a Good Thing?
According to a recent Barron’s article that cites an about-to-be-released study by Equilar, the average tenure for S&P 500 CEOs between 2013 and 2022 was down only slightly from 7.6 years to 7.2 years. That small change glosses over the real story – the impact of the long-term CEO which skews the averages higher. Looking at the median instead, identifies a more dramatic shift — during the same period, the median CEO tenure dropped by 20%, from 6.0 years to 4.8 years.
Is it harder to be a CEO today?
We would argue that it is. While there has long been a short-term imperative to deliver quarterly, estimate-beating results, new variables are constantly being added to the equation. The speed of information flow from traditional sources has accelerated and the rise of non-traditional sources has added further complexity, forcing much smaller reaction times which may not provide enough space for well-thought-out longer-term decisions. In this regard, the article points to “radical transparency on social media, including employee opinion-driven sites such as Blind, critiquing every move….” and the “maw of environmental, social, and governance factors and hot-button cultural issues.” But a lot of things are harder than they used to be — should that provide a blanket excuse? We don’t think so and it appears corporate boards don’t either.
The best CEOs walk a fine line.
They can realistically address current concerns and challenges while keeping all stakeholders focused on bigger-picture, longer-term objectives. Perhaps even making better “seat of the pants” decisions based upon a greater depth, context, and experience — akin to the 10,000-Hour Rule popularized by Malcolm Gladwell in Outliers.
What does it mean for stock price performance?
That said, the link to the stock price performance of companies with longer-tenured CEOs seems weak at best. According to Spencer Stuart, over the last 20 years, 25% of companies with CEO survivors (those holding the CEO job for 10 years or more) generated just 1% higher annual total returns. However, the article points out that a lack of clarity and stability in the CEO position can be a big detractor to shareholder value.
The conclusion — a steady hand does not always pay off, but a revolving door C-suite can be significantly detrimental to performance.
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