Why Does The CEO Office Have A Revolving Door?

January 15, 2014 Vince Molinaro

Why Does The CEO Office Have A Revolving Door?

Just 17 months after Thorsten Heins took over as CEO at BlackBerry Ltd. – he was out the door.

Heins had been tasked with plotting a course for the smart phone maker to regain market share lost to rivals Apple and Google. As CEO, Heins tried to put together a group of investors to take BlackBerry private. When that deal fell through, so did Heins’ tenure.

Heins is only the latest in what seems like a growing list of high-profile CEOs making quick, sometimes unexpected departures. 2013 offered us a number of prime examples.

In July, embattled sportswear maker Lululemon lost its highly regarded CEO Christine Day with little or no warning. Jeremy Levin sent ripples through the generic drug world when he announced his sudden resignation as the CEO of Teva Pharmaceuticals, Israel’s largest corporation.

According to the Challenger, Gray and Christmas Inc survey of CEO departures, more than one thousand chief executives have left their organizations in the first ten months of 2013. That is up five per cent over the same period a year earlier.

As departures increase, tenure has been decreasing. The average CEO tenure is now believed to be about eight years. However, for the chief executives of the largest companies in the United States, Forbes magazine estimates CEO tenure to be less than five years.

Why are CEOs moving in and out of their posts with increasing frequency? The reasons vary.

Boards of directors appear to have much less patience and have increasingly less tolerance for poor or even mediocre performance.

The same holds true for misconduct. In the wake of numerous corporate scandals, boards have become less interested in any kind of bad behavior, from financial irregularities to sexual harassment. A good many CEOs in the last five years have fallen on this sword.

It also seems a lot easier for a CEO to get in trouble than ever before. Thanks to the Internet and social media, high-profile senior executives live under constant scrutiny. Every loud argument with a colleague, every poorly worded memo, every ambiguous comment, is now destined to find its way into the public domain. And each time that happens, a CEO somewhere self-destructs.

However, sometimes CEOs hit the ejector button for their own reasons, and not because they were being pushed by boards or hounded by the media.

Many of the best and brightest CEOs are often willing to move on a moment’s notice. At some level, this is only a reflection of market realities: true executive talent is rare and highly sought after. As a result, top executives are always being courted, and that can encourage them to leap frog from organization to organization.

With so many factors contributing to shorter CEO tenures, it begs a question:  On the whole, is this a positive or a negative trend?

Shorter terms do serve a purpose for some companies. It makes some sense to keep the tenure of an executioner CEO short. This is a leader who is there to deliver painful change, and then ride off into the sunset. The same holds true for lame ducks; sometimes it doesn’t make sense to retain a CEO that is only brought in to ride out a particularly difficult period.

However, shorter CEO terms can also erode short and long-term stability. Employees and investors often react negatively if there is a revolving door in the CEO’s office. This will make it very difficult to retain and recruit top talent. Investors, meanwhile, often use executive instability as an excuse to abandon stocks.

At the same time, the reality today is that the corporate world is making it easier for CEOs to leave on their own accord. Negotiated exit packages put so much money on the back-end of a CEO engagement that it’s hard to resist. The first sign of trouble, and out they go.

While different kinds of CEOs necessitate different tenures, the volatility that comes from recruiting, and then losing, top executive talent can be disruptive, even destructive, to a company’s long-term prospects. It’s a discussion we need to start having at the board and C-Suite.

What’s your point of view on CEO tenure?  Let me know.

Follow me @VinceMolinaro

About the Author

Vince Molinaro

Vince Molinaro is the Global Managing Director of Strategic Solutions at Lee Hecht Harrison. He is also the author of The Leadership Contract – a New York Times and USA Today bestseller. Vince has spent more than 20 years as an adviser to boards and senior executives looking to improve leadership in their organizations.

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