CEOs – Quit While You Are Ahead?

Change, Vistage Peer Groups / 07.01.20140 comments

Long tenure is often perceived as a measure of success and a sign of CEO competence.  But does the data bear this out? Not according to this INC. Magazine article “CEOs: Why You Should Quit While You’re Ahead” which offers some insightful findings about CEO tenure.  The study focuses primarily on large companies but even in small to midsize privately held companies, can the CEO stay too long?

Several experts maintain that the CEO is on a steep learning curve during the first couple of years but will really hit his or her stride in years 3-5.  After 5 years, however, the company’s results begin to decline.  According to Michael Jarret at INSEAD, “The team’s research found that when a CEO stays over five years, customer relationships, product safety and quality, and financial returns will all decline.”

One reason for the decline is that you are more likely to settle for the status quo.  “After the initial rush of enthusiasm and energy, established routines and networks can smother the drive for innovation,” Jarrett writes. A second reason for the decline is that you stop learning. “… as CEOs accumulate knowledge and become entrenched, they rely more on their internal networks for information, growing less attuned to market conditions,” the authors say.

One way to avoid this decline is suggested in the title of the article:  CEOs: Why you should quit while you’re ahead. In certain situations a CEO choosing to step down may very well be the wise or heroic thing to do. On the other hand, installing a new CEO every 5 years is not practical for many companies, especially small and medium size businesses. And why would someone who has persevered through many challenges and worked hard to rise to the top leadership role want to quit?

Quitting your job as CEO will certainly bring about change for your company (for better or worse). Another path forward is to join a CEO Peer Advisory Board of independent CEOs who will continually challenge your thinking, push you out of your comfort zone, and keep you externally focused and learning.

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