CEOs need more than 5 years at the top

Average chief executive tenure has fallen 73% since 2010.

by Adam Gale
Last Updated: 15 May 2017

The 5-year plan may be out, but the 5-year CEO is definitely in. According to a recent report by PwC's Strategy&, the median length of service at the top for the biggest 300 British businesses is 4.8 years, down 73% from 2010’s high of 8.3 years. It’s not a fluke either – in five of the last six years the figure has fallen.

There could be various reasons for the change. Perhaps there are more takeovers these days (or more scandals...). Perhaps CEOs just want to leave and try new things or perhaps they’re burning out under the pressure of the always-on modern business world. Or maybe the combination of cannibalistic start-ups and the inexorable rise of automation has made shareholders edgy, and they’re the ones giving the top dogs the boot.

To the extent this last one is true, it would be a mistake. Consider what the job of a modern CEO actually is. In an age where agility trumps strategy and talent is everything, the chief executive needs to provide vision, otherwise the agile organisation will find itself backflipping in circles. They need to inspire and motivate their workforce, and they play a crucial role in setting the culture.

Agility is becoming a meaningless buzzword

None of these will benefit from CEOs who are replaced every couple of years for failing to hit their targets. Clearly, a leader who just isn’t up to the task needs to go, but replacing them for the sake of it seems imprudent at best, and at worst a sign of panic.

A company needs to know what it wants from its leader, and select them accordingly – it’s rarely a case of this or that person is just ‘the best leader'. Yet over 3% of British CEOs are forced out every year, compared to 9% who leave with a succession plan. This ratio appears to be improving, but it still implies a substantial proportion of changes are driven by push factors rather than pull.

Shorter CEO tenures are just one symptom of the short-termism that impatient investors cause. After all, chief executives who live with the shareholder sword of Damocles hanging over their heads are unlikely to make the most long-term of decisions even in their early days.

It would be unfair to say short-termism benefits no one – investors can do alright out of it, so long as they move their money fast enough. But it does discourage businesses from investing or developing long-term relationships, and that ultimately hurts everyone.

If you consider the great success stories of modern business, you’ll find very few firms that conquered the world with a different general at the front every couple of years. It’s not a coincidence that the best performing businesses play the long game, and are so often still led by their founder.

All in all, it may be time to cut the big guys a little slack. 

Image credit: Erik Fitzpatrick/Flickr


Find this article useful?

Get more great articles like this in your inbox every lunchtime