What do Boston Scientific, Papa John’s International Inc. and Pfizer have in common? They all have seen the departure of a CEO recently. Unfortunately, these companies aren’t alone and the stints are getting shorter. In fact, they are part of an increasing trend where the CEO tenure has become shorter and more intense than ever before.
Several studies, including Booz & Co.’s CEO Succession 2000-2009: A Decade of Convergence and Compression identify that CEO churn continues on the upswing. According to the study, as the time in the CEO job is getting “shorter and more intense, the margin for error or underperformance is narrow, and the role of CEO increasingly excludes the job of also being chairman.” The good news is that the opportunities for strategic dialogue with the chairman are on the increase.
To be sure, such rapid turnover increases share volatility and significantly destabilizes the corporate culture. These outcomes can often be the undoing for a corporate board. There are, of course, positive destabilizations. Ford’s board of directors looks brilliant for choosing Alan Mulllaly. But when they are minor disasters, colossal flame outs, or appointments that conclude with only small amounts of added value, destabilizing the enterprise comes at great cost.
What is causing the CEO churn? Of course there is no one reason, but more likely a combination of circumstances. Perhaps most obvious is the sheer pace of the game and the increasing complexities at the top. What element of business, or life for that matter, has not gotten shorter cycle times in the last 10 years? Like players switching teams, CEOs leave and boards switch out their CEOs more quickly and often than in the past. It could be for unfortunate reasons like sexual harassment allegations or for good reasons, like underperformance.
Whatever the causes, the impact of such turnover at the top is usually grave. Shareholders wonder what is coming next. Many C-suite executives will be switched out as the loyal lieutenants are brought in with a new hire. No doubt, these changes destabilize the rest of the organization for the near future. Finally, employee engagement sags when corporate strategy keeps changing. Certainly meaningful results are difficult to deliver.
Despite the tumult that comes with turnover of the top brass, there are things that the board of directors and the CEO can do minimize the impact. For the board’s part, each director can pay close attention to how the company’s employees—all through the ranks up through the top team–perceives the CEO (they will hear directly from shareholders and the analysts as a matter of course). Most employee engagement/culture surveys can get at this factor of the internal reputation of the CEO. Of course, being the CEO is not a popularity contest and if the job is raising standards and making unpopular decisions, take into account the anger factor in the surveys and give the CEO extra time.
I was called in as a mentor for a CEO just on this point. An otherwise high performing CEO was viewed as dangerously aloof from the culture, even though he was five years into his CEO role with this healthcare company with 100,000 customers and steadily growing revenues. The danger, as perceived by the board looking at culture data, was that the strategy would not be executable because of the rift in CEO thinking and the C-suite team and lower layers’ doing. The CEO turned it around—it took many months—not without hard work and some new communication practices. But it has paid off big time as increased profits and improved culture scores captured the enterprise’s leanness, and increased capability for execution.
The CEO can also take steps to minimize the chances of a crash and burn out of the corner office. Specifically, there are four tips that can help turn the tides.
CEO churn can happen for a lot or reasons. The board can sake sure they are carefully watching all the key indicators of success to help make needed course corrections. And the CEOs can be counterintuitive and wise enough to make sure they don’t become their own worst enemy.
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