Why More Experience, Longer Tenure Is Increasingly Seen As Optimal For CEOs

Leadership characteristics can be as cyclical as the times in which executives manage. Periods of change and poor economics can generate calls for new leaders, just as periods of stability and strong performance may prompt the desire not to rock the boat.

As is so often the case, optimal performance usually comes from a combination of tangible and intangible factors, as well as a dollop of good luck. JL


Chip Cutter reports in the Wall Street Journal:

Corporate boards are increasingly seeing merit in longer CEO tenures. “The mind-set about CEO tenure is at the beginning of a potential change.” Over the past decade, the tenure of S&P 500 CEOs has risen. The average S&P 500 CEO tenure as of 2018 was 10.2 years on the job, up from 7.2 years in 2009. New research suggests CEOs had some of their best value-creating periods in years 11 to 15 on the job (when) executives benefit from institutional knowledge and the experience of guiding a company through multiple crises.

If Leslie Wexner, the 82-year-old billionaire behind Victoria’s Secret, steps aside as the company’s leader, as he has been in talks to do, it won’t only be a big moment for the retailer. It will also end the tenure of the longest-serving CEO in the S&P 500.

Replacing him would be Warren Buffett, whose time on the job is just behind, at a half-century.

Mr. Wexner has served as CEO of L Brands Inc., LB +5.04% the retail giant he founded, for 57 years. He is now in talks to hand over the job after a difficult period for the business, The Wall Street Journal reported last week. Mr. Buffett, 89, has guided the conglomerate Berkshire Hathaway Inc. since 1970.

Their longevity in the roles makes them rarities among corporate leaders. Few executives manage to stay in power for decades, although the tenure of S&P 500 chief executive officers has gradually risen since the financial crisis, and the founders of some of the hottest tech companies have established voting control that could help them remain at the helm indefinitely.

Some corporate boards are increasingly seeing merit in longer CEO tenures, said James Citrin, head of the North American CEO practice for Spencer Stuart, a leadership advisory and executive recruiting firm. “The mind-set about CEO tenure is at the beginning of a potential change,” he said.

LONG-TENURED

The longest-serving CEOs in the S&P 500:

Company, CEO, starting date as CEO

• L Brands, Leslie Wexner, 1963
• Berkshire Hathaway, Warren Buffett, 1970
• Universal Health Services, Alan B. Miller, 1978
• First Republic Bank, James H. Herbert II, 1985
• Royal Caribbean Cruises, Richard Fain, 1988
• Regeneron Pharmaceuticals, Leonard Schleifer, 1988
• Source: Equilar

Over the past decade, the tenure of S&P 500 CEOs has risen, said Matteo Tonello, managing director of the Conference Board, a research group. The average S&P 500 CEO tenure as of 2018 was 10.2 years on the job, up from an average tenure of 7.2 years in 2009. CEO tenure statistics can vary from year to year and across analytical methods.

In a stable economy with a booming stock market, many corporate boards are reluctant to make executive changes if a company is delivering solid results, Mr. Tonello said.

New research from Spencer Stuart suggests that when top executives stay for more than a decade, they often deliver some of their best years of performance. The executive-search firm analyzed the annual financial results of about 750 S&P 500 CEOs during their tenures and interviewed dozens of leaders in a report published in Harvard Business Review late last year. It showed that CEOs had some of their best value-creating periods in years 11 to 15 on the job.

In these “golden years” of CEO tenure, as the report describes them, executives benefit from strong institutional knowledge and the experience of guiding a company through multiple crises. “In many cases, longer is in fact better,” said Mr. Citrin, a lead author of the report, who has presented its findings to many corporate board members.

How long a corporate chief lasts in the corner office can depend on multiple factors, including the CEO’s financial stake in a company. Founders may be able to lead a company for extended periods due to large ownership positions or special voting powers that cement their position. Such powers are common among some of today’s best-known technology companies. Facebook Inc., Snap Inc. and Lyft Inc. all have supervoting structures.

Even so, efforts to maintain control don’t always pan out. Uber Technologies Inc. replaced co-founder and CEO Travis Kalanick in 2017 after scandals involving its work culture. Adam Neumann stepped down last year as CEO of We Co. amid ballooning losses and questions about conflicts and his management style. Both founders had established a supervoting structure at their companies, although Uber later undid it.

Often, results matter above all else, corporate-governance experts said. “If you don’t have outstanding performance, you don’t survive, period,” said Bill George, who was CEO of medical-device company Medtronic PLC for 10 years and is currently a senior fellow at Harvard Business School. “No one is irreplaceable.”

Mr. George said he considers a decade to be the magic period for a CEO: long enough to make transformative change at a company without risking complacency. After such a period, he said a company benefits from a leader who can bring a new perspective. “High-tech, fast-moving companies in this day and age need a new CEO every 10 years,” he said, adding that many founders overstay their usefulness.

Still, Mr. George said that some executives manage to deliver strong results for much longer. In the S&P 500, about 15 CEOs have held their jobs for more than 25 years, including the chiefs of chip maker Nvidia Corp., game publisher Activision Blizzard Inc. and Royal Caribbean Cruises Ltd.

The greater longevity of many of today’s large-company CEOs may actually mean more turnover in the years ahead, as long-serving CEOs step down and boards hand the job to lieutenants or outsiders. “We could see change at a rate that is higher than what we’ve been seeing in the past,” the Conference Board’s Mr. Tonello said.

Whether a younger generation of companies can spawn a new breed of long-term CEOs also remains to be seen. If Mark Zuckerberg, who founded Facebook in 2004, has a reign as long as Mr. Wexner’s, he would still be running the social network at age 76 in 2061.