Are long-standing CEOs good for business?
Are long-standing CEOs a good thing? The loudest voices will probably say yes, but it’s good to pay close attention, especially as a director.
These days, employee turnover has increased dramatically, and we can say the same for CEOs.
CEO exits began to increase dramatically in the late 2010s. According to Forbes, the pandemic eased this trend slightly, but now that the worst of it is behind us, the exits are ramping up again.
It truly is an era of constant change.
Is that a good thing? Should boards work to keep their CEO as long as possible if they think it’s worth it? Like any big decision, it’s worth diving into the pros and cons to get a fuller picture.
Before we start, what defines a long-standing CEO?
We’ll say that “long-standing” means a tenure clearly greater than average.
What is the average? This varies across countries and industries. It could be anywhere from 6-12 years. But once a CEO goes further than this milestone, they’ve established their reputation as long-standing.
The pros
The pros are the loudest, without a doubt. There is simply no escaping the fact that some of the most successful companies in the world have long-standing CEOs. Think Warren Buffett, Stephen Schwarzman (Blackstone) or Richard Fairbank (Capital One).
Challenging periods of business will always happen, and these people have proven themselves capable of leading companies through them. So, whether you agree with their approach or not, long-standing CEOs usually mean a respected leader is at the helm.
In addition, long-standing CEOs often attract the “best shareholders”, according to MarketWatch. In other words – people who invest long-term and are perhaps motivated because they deem the company to be in good hands.
The cons
The number one con is that only some leaders are built for the long term, especially in this age of constant change.
Some CEOs may start great but become stale over time – either because they lose interest or the culture around the business has changed, and they’re no longer a good match for the role.
Spotting this can be tricky, as it can take hold gradually.
The other main downside of long-standing CEOs is that they will have to leave eventually, and the longer they’re in the job, the harder it may be to manage without them.
This is especially true if proper succession planning isn’t done in advance. Long-standing CEOs can leave gaps so big that companies spend too much time and resources trying to fill them, negatively impacting their market value.
Recent analysis from British academics found that many companies would take “much longer to recover their peak levels” before the veteran CEO stepped away from the role.
The verdict
Long-standing CEOs can be harmful, but they don’t have to be. The number-one rule: don’t assume that the company’s future is secure just because a CEO has been in the job a long time.
From what we know, we can give a few rules of thumb to help boards decide whether their CEO is good to keep around long-term:
Key conditions:
- Does the CEO provide continuing, long-term value to the brand?
- Is the CEO popular with shareholders?
- Does the CEO have the skills, experience and patience to deal with most, if not all, rough patches?
- Are directors confident they’ll press the ‘push here to dismiss’ button if the right situation arises?
- Do directors have a clear idea of what that situation would look like?
- Does the board have a robust succession plan for a long-standing CEO’s departure?
If the answer to these questions is ‘yes’, then the board and the company are on the right track to make the most of long-standing CEOs and prepare for when they leave.
