Do CEOs get better or worse over time? Is there an ideal length of time for a CEO to hold office? It appears that in general there is and it is around 5 years. This is the conclusion of a study carried out on 356 US companies from 2000 to 2010 by Xueming Luo, Vamsi Kanuri and Michelle Andrews of the University of Texas as reported in a recent issue of the Harvard Business Review. They measured the strengths of the firm-employee relationship and the firm-customer relationship. They found that both measures improved in the early part of a new CEO’s career. Although the employee relationship then continued to improve the customer relationship typically weakened and the company’s performance declined. They calculate the optimal tenure length for a CEO to be 4.8 years.
Why might this be? The authors postulate that one reason has to do with how a CEO learns. This changes over time. Initially he or she seeks information in diverse ways, including internal and external sources. They spend time with customers and they listen. However, as they become expert they rely more on internal networks and less on customers and other external sources. They assume more and maybe listen less. They become less attuned to the market. Also over time they become more attached to the status quo. They are more likely to consolidate what they have achieved rather than drive more change or take more risks. CEOs start out as innovators; hungry for change, ready to listen and to consider all options. As time goes by they can become more set in their ways and more convinced that they are already on the right track.
Every CEO should try to think like a new CEO. The longer they have been in office the more they should be prepared to challenge assumptions and fight complacency. They need to keep looking outside for ideas. They have to stay hungry for innovation.
