When should you step down as leader?

Your earlier success can be your eventual undoing.

by Stephen Jones
Last Updated: 31 May 2019

If there’s one leadership lesson we can take from Theresa May's premiership, it’s that no one benefits when the boss outstays their welcome. The challenge for leaders is how do you know when is the right time to step down?

A 2013 study that tracked shareholder returns against chief executive tenure at 356 US companies between 2000 and 2010 determined that the optimum length of service was 4.8 years. Any longer and, on average, the company began to suffer.

In rapidly growing businesses, this can be because your skillset is better suited to earlier stages of growth - and CEOs should not be afraid to be open about that fact, says Mark Livingstone, co-founder of LOVEFiLM and now CEO of online prescription service Pharmacy2U. But most of the time it’s because leaders are cursed to become victims of their own success.

Former Disney chief exec Michael Eisner provides a classic example. Eisner grew to almost celebrity status as the face of the entertainment brand he joined in 1984, after transforming the ailing broadcaster and theme park operator into a global powerhouse, spanning broadcast television, retail stores and cruise lines.

The company’s stock rose 27 per cent a year during his first 13 years at the helm, but his later years were marked by stagnation and financial underperformance - culminating in Eisner’s resignation in 2005 after a shareholder revolt stripped him of the company chairmanship.  

It’s understandable that a previously successful leader’s performance may falter the longer they’ve been in the hot seat. When a CEO first joins, they're desperate to make an impact, they often bring fresh eyes and ideas, and soon fix on a clear strategy. Crucially, they consult a wide range of voices - internally and externally - as they seek to understand the company they’ve joined and the market it operates within.

But inertia can set in as a leader becomes more assured in their role and potentially takes their eye off the ball. Why look outside the trusted network that has helped them successfully guide the business over the years or change a previously winning strategy? Why listen to upstarts who can't possibly understand the business as well as they do?

When a leader becomes too reliant on ossified networks, or stops questioning whether their strategy is still appropriate for a much changed market, they stop making the best decisions, says Randall S Peterson, professor of organisational behaviour and academic director of leadership at the London Business School.

He says once contempt sets in - as in May’s and Eisner’s case - it’s game over.

"Successful leadership is as much about managing impressions as it is about managing the reality," says Petersen. "Once people expect you to fail, that is what they will see. So if you outstay your welcome it will always be swimming upstream."

That’s not to say that every leader grows stale. There are indeed many examples of long-serving, high performing leaders, from Tony Pidgley, who has grown Berkeley Group into a FTSE 100 giant, to the all-conquering Jeff Bezos. But presumably most ousted leaders also assumed they were doing fine, so how can you know when your time's up?

Starling Bank CEO Anne Boden offers the simplest solution, one that’s rooted in your career ambitions rather than necessarily what you feel is best for the company: go when you feel too comfortable.

In December 2013 she left her role as COO at Allied Irish Bank, and a 35 year career in corporate banking, to start the challenger after the desire to change the image of the industry became too big of an itch not to scratch.

"I’ve worked in banking, in insurance, I’ve been a consultant and worked in a lot of international roles. Then in my mid fifties I decided to start a bank when most people told me it would be impossible," she says. 

"Once you're in a situation where you're no longer challenged, you're too comfortable and you stop having to struggle to achieve your ambitions, it's time to strive for something different." 

No matter how succesful you've been, or how great a job you still think you're doing, or how much you're enjoying yourself and want to stay, you'll need to face up to the fact that eventually you must go. If you're lucky it will be up to you whether you leave on a high or not. But that question - am I still the right person for the job - is one every leader should be prepared to ask.

Image credit: Marcelo Jaboo/Pexels



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