Is There Such Thing as an Optimal CEO Tenure?

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Jaap de Jonge
Editor, Netherlands

Is There Such Thing as an Optimal CEO Tenure?

In an interesting article "Long CEO Tenure Can Hurt Performance" (HBR March 2013) by Professor Xueming Luo, Vamsi K, Kanuri and Michelle Andrews results are disclosed from a study the authors did among 356 US companies between 2000 to 2010 analyzing the correlation between CEO tenure (~length of time serving in position of responsibility) and total shareholder returns.
The researchers found that CEOs create most shareholder value in their first years and argue this due to 2 factors:
- The firm-employee dynamic - This keeps improving the longer a CEO serves, growing shareholder value.
- The firm-customer dynamic - This strengthens only for a time and then weakens.
The optimal length of time served reported (for this group of companies in this period!) was actually 4,8 years...
Boards are advised to stimulate long-tenured CEO to keep spending a lot of time and effort on the firm-client relationship. To achive this, incentives plans for such leaders should focus heavily on consumer and market results. This will keep CEOs focused on understanding and learning client and market dynamics.

  Juergen P. Mueller MBA
Business School Marketer, Germany
 

Reduction of CEO´s Dynamics and Shareholder Returns

Indeed it is important to look out for companies w (...)

  Andrew Blaine
Business Consultant, South Africa
 

The Best Length of Tenure for a CEO

In my opinion, the optimal length of tenure for a (...)

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