Management Thoughts - Tenure of a CEO

Should there not be a fixed tenure for CEOs????

This may sound very controversial but in my view it deserves a serious consideration. We are familiar with the Peter Principle which says that one rises to his level of incompetence in the organization. With some alteration in letters, keeping the spirit intact, we can perhaps say:

“Every  CEO moves towards ‘staledom’ in his approach leading the organization to doom; the speed at which he becomes stale depends on his individual personality”

Let me explain what I mean by “Staledom”. When a CEO is new, he is fresh with ideas, bubbling with enthusiasm, has a dream of steering the organization in certain direction to take it to certain level and evolves strategies to achieve his dreams. In the initial phases, he does taste success. Firstly because he would have analyzed the shortcomings of the predecessor and developed plans to overcome them. He gets advantage of starting from a clean state so that he has no hesitation to introduce “course corrections” and he does not have to explain the “U Turn” that he might have taken. Thirdly he would have also come with certain reputation and people might like to cooperate and give him a chance especially if they were fed up with his predecessor. Being new he is also more observant, more open to receive feedbacks and is positive about constructive criticisms. He becomes an enthusiastic learner to prove himself. This urge is very strong in him at the initial phase.

Slowly as he tastes success, he becomes more and more confident about taking decisions independently. If the success continues he starts entertaining an impression that he can do no wrong and a sense of invincibility sets in his psyche. Slowly he becomes autocratic, becomes intolerant to dissenting voices and then on begins his downward journey. Why does this Happen? With time situations change, outlook changes, tastes change, alternative options appear before the people. What works in one era need not work in another era. Therefore the CEOs have to be very sensitive to changing situations – firstly they should sense that situations are changing and then adopt themselves to the new situation. It is human to resist change and difficult to accept change. The past success adds to the problem as successful people get blinded by the successes achieved initially.

May be this is the reason that in US a person cannot stand for election for the third term. His maximum tenure is 8 years. Fresh ideas, new thoughts come up every 8 years if not after 4 years.

This is also perhaps the reason as to why dynasties also do not last for a long period of time. A King either gets thrown out if he loses a war or gets replaced by his son if he dies. In the latter case there is not much change in the way the Kingdom is administered. Of course some bright princes after ascending the throne do bring revolutionary changes but they are exceptions.

We can see many corporate houses where a long tenure has coincided with drop in performance. It also does not mean that by changing the CEOs frequently will keep the organization healthy. When to step down, when to change is difficult to judge but perhaps that is why “the Wise people” are put in the Board to take the “right” decisions.