The fuss around CEO tenure is loud enough, and the debate contentious to go on different directions. I felt the topic warrants a rational discussion. There is no doubt that every CEO has a time to quit or retire. There should also be no argument that each organization must have a sensible plan to deal with the inevitable.
Let me begin by sharing my readings about CEO successions. Put bluntly, CEO tenures have nothing to do with corporate governance
When should a CEO retire? My reply is a rather simple one – CEOs will retire when they stop to be effective leaders. I primarily disagree with the concept of CEO tenures, and frankly, I cannot really find a single good reason for supporting such a regressive thinking. Any argument in favor of CEO tuners is in my views rooted in defective business logic.
The bigger question is why would we need to create another bureaucratically imposed, one size fits all solution that deals with the symptom and not the problem? With the average CEO tenure is getting shorter, who needs CEO term limits anyway? Why would shareholders ever want the person in charge of the leadership of the organization, vision and strategy to be a lame duck right from the start? Besides, a CEO could always be fired for poor performance, or ethical lapses, so what purpose do CEO term limits serve other than to discourage the CEO?
The fundamental mistake of most arguments in support of CEO term limits come from a belief that tenure is in some way a very relevant measure, and that there is some optimum time to serve. That is wrong. The simple truth of the matter is that the time needed to achieve performance goals varies based on several factors such as the age, size and competitive positioning of the company, the industry etc. Saying that a CEO of a start-up company should work under the same term limit of a CEO of well-established big company is extremely unrealistic and wrong thinking.
Good CEOs have the ability to improve their thinking and leadership skills to reflect the growing needs of the organization and the changing business environment. CEOs who cannot operate efficiently will not be effective whether they hold the job for 9 days or 9 years. The number of years is not really the issue. Business know-how, good leadership, and the ability to get the executive management execute the business to generate profits should be the benchmark to evaluate the CEO’s performance.
Terrific CEOs ensure continuity between vision and strategy. They inspire, lead and seek the advice and direction of their board. Great CEOs adapt. They are not static but always moving ahead in the right direction.