The Shortening of CEO Tenure

The Shortening of CEO Tenure

By Jeff Hooper

James Brett, J. Crew Group, Inc.; Michael Mauler, Gamestop; Tom Hayes, Tyson Foods; and, John Flannery, GE, all have something in common. They abruptly ended their tenure as CEOs of major public companies in less than two years. Mauler exited after only three months. Such is the C-suite environment in today’s public companies.

There is little doubt it’s getting harder to retain chief executives. Growth in activist shareholders, institutional investors more actively monitoring companies’ performances and calling for changes when management stumbles, as well as a continuing flow of new SEC and FASB regulations and standards have put increasingly greater pressure on top executives; however, these executives like those mentioned are not just being ousted by investors, many are proactively throwing in the towel after just a short time in their positions.

During 2018 the average tenure of chief executives at S & P 500 companies fell to five years, a decline of about a year from 2017. So, why the dip?

The short answer is that it is complicated. While it is fairly clear that CEOs need to satisfy board members and investors, seemingly basic job requirements are getting harder every day. The long answer is that achieving growth in mature markets is difficult and chief executives can’t shift their ships fast enough to respond to so many overlapping needs, from customers looking for ongoing innovation to investors calling for radical transparency. In an effort to uncomplicate why some C-suite leaders last while others quickly fade, at Boldsquare we believe it comes down to three critical skills that every leader needs.

Communication Skills

From my own hands-on experience working with dozens of global billion-dollar corporations, the CEO is the message! For the CEO, communication is connection and inspiration—not just the transmission of information. Communication is critical for building alignment and executing strategy, uniting employees and encouraging collaboration, explaining new ideas clearly, delivering bad news without creating conflict or destroying trust and establishing and maintaining critical business relationships. Communication is the CEO’s “information highway” that must flow freely in both directions and in every circumstance.

Managing Transformation

Everyone in the organization has a role to play in managing transformation. The role of CEOs is unique in that they stand at the top of the company and all others take cues from them. Research conducted by McKinsey & Company suggests that four key functions collectively define a successful role for the CEO in implementing transformation initiatives.

  1. Making the change meaningful—people will go to extraordinary lengths for causes they believe in, and a powerful transformation story will create and reinforce commitment. The ultimate impact of the story depends on the CEO’s willingness to make the transformation personal, to engage others openly and to spotlight successes as they emerge.
  2. Role-modeling desired mindsets and behavior—successful CEOs typically embark on their own personal transformation journey. Their actions encourage employees to support and practice new types of behavior.
  3. Building a strong and committed leadership team—to harness the transformative power of the C-suite, CEOs must make tough decisions about who has the ability and motivation to make the journey.
  4. Relentlessly pursuing impact—there is no substitute for CEOs rolling up their sleeves and getting personally involved when significant financial and brand value is at stake.

Only the boss of all bosses can ensure that the right people spend the right amount of time driving a successful transformation.

Ability to Change Contexts

Perhaps the most critical skill for any CEO today is the ability to change contexts. In other words, change their habitual business practices and belief systems in order to  fit in, embody the company culture and successfully address rapidly changing contemporary problems in dealing with people, organizations and managing transformation.

This ability to “fit in” is a certain make or break talent for CEOs and C-suite leaders. It is certainly a key factor in making a leadership role last. As evidenced by the continuing decline in CEO tenure, not everyone can do this.

Those of us who have spent significant time in a corporate environment have, undoubtedly, watched as talented, well-meaning people fail to earn trust, clash with the company culture and succumb to the intense pressure and long hours of the top job.

Although the CEO reports to the board of directors, they also must answer to a variety of core constituents including employees, customers and investors. Change management, ethics and culture fit are levers that help leaders connect with key stakeholders and ultimately satisfy their evolving needs.

Distilled to their simplest form, these pillars point to one thing: the importance of building and managing relationships. It is through relationships and the ability to manage the competing needs of the company’s various stakeholders that CEOs can extend their tenure for the long term.

Posted on February 27, 2019