In the past five years, CEOs transitions have become more common than they had been in the preceding five years. As a result, median tenure has fallen a full year since 2013.
According to a recent Equilar study, the median tenure for CEOs at large-cap (S&P 500) companies was 5.0 years at the end of 2017. Looking back historically at the companies included in the study, that figure has fallen from 6.0 since 2013. Average tenure, which is weighted by long-standing CEOs with several decades of service, also dropped in that timeframe, but to a lesser degree—decreasing from 7.5 in 2013 to 7.2 in 2017.
There are a number of CEOs in the study who have served more than 20 years—32 to be exact—and about 100 more who have served between 10 and 20. However, a plurality of large-cap CEOs have been in the corner office between one and five years. Of all CEOs who were serving at the end of 2017, 38.1%—or 192 executives—had been in their current position for a handful of years or fewer. The breakdown is shown below in both total number and percentage of the whole.
2016 was an outlier year for CEO turnover, with 73 executives leaving their posts, according to Equilar data. Yet, in each year since 2013, at least 50 top executives have left their positions. A majority of these departures were classified as “resignations,” even though they came under a variety of circumstances. For example, in 2017, 33 of the 52 CEOs who left their roles officially “resigned,” according to their 8-K filings. Rarely are executives officially “terminated,” even if they leave under duress following scandals, as we’ve seen in cases such as Equifax and Wells Fargo.
A greater number of executive positions available means a greater number of opportunities to increase diversity in leadership, which lags furthest for CEO positions. According to the Equilar study, just 5.6% of CEOs at large-cap companies were women as of December 31, 2017. By comparison, about 22% of seats on boards of directors at these companies were held by women at this time.
Despite the fact that 282 CEO spots have changed hands in the past five years, the prevalence of women in those roles has only increased by 1.9 percentage points (or a net gain of nine women CEOs). One criticism of board recruiting tactics is that the insular nature of board networks leads to a preference to look only for directors who have already been on other boards. Since a vast majority of board members are men, this practice would lead to a cyclical trend of adding more of the same directors.
In the case of the CEO recruiting, the lack of women in top positions points to a pipeline problem. A separate Equilar study from mid-2017 found that a majority of CEO hires come from the inside (79.1% of those included in the sample). If succession plans throughout the organization are more deliberately focused on elevating executives from more diverse backgrounds, leadership then should naturally become more diverse based on current hiring/promotion practices.
There comes a time in every CEO's career when they need to exit their position.
Yes, there are plenty of examples of CEOs who keep the post for 30 years or more. But the average tenure for a chief executive is just five years, according to PWC, and there's a reason for that. At some point, every CEO faces the question of whether it's finally time to take the off-ramp and leave the company.
But how do you decide when it's time? There are three key topics you can consider to help determine the answer.
All of us can relate to the experience of starting a new job and being filled with energy and new ideas. The possibilities of what you can do can seem endless, and the exciting ideas can flow like water. Your organization might even struggle to keep up with all of them, especially during the first 12 to 18 months you take the job.
But that flow of ideas tends to shift over time. After that initial phase of ideation, you might shift into an implementation phase where you begin to reap the benefits from putting your ideas into place. The final phase, typically five years in, is where the change and growth resulting from your ideas begins to flatten out. That helps explain why the average tenure of a CEO caps at that time frame. The excitement of those early days is gone, and you just don't have as many new ideas for change as you used to.
If you find that's the case with you, and that you have already deployed all of your best ideas, then it might be time to leave and let someone else come in with their ideas of how to bring the organization's growth to another level. While some have endless innovation and ideas, most of us run through our bag of tricks and need a new environment to be maximally effective. You have done what you came there for, and it might be time to let someone else have a go.
We all have energy when we start a new job. There's so much to learn and so many people to meet. It's exciting and energizing, especially if it connects to your passion and it's a place you want to be. You can't wait to wake up each and every morning and get back to work.
On the flip side, we have all worked in a job we hate. One where the clock can't tick fast enough before the day is over, and you can go home and do something you actually enjoy. The catch is that if you feel that way about your job and you're the CEO, everyone in the organization knows it. It becomes a kind of negativity that infects everyone. That's why it's important to check your own energy level and see how you feel about your job.
To be fair, everyone can have a bad day. But if you find your energy level lacking for a week, a month, or longer, then it might be time to ask if the job is a fit for you anymore. After all, life is too short to waste on doing something you hate.
I recognize that very few people, especially CEOs, think about money as their first priority when it comes to doing their job. Very few of us are driven by greed, and most of us have much higher goals and ambitions.
That said, if you are not being fairly rewarded for all the blood, sweat, and tears you are investing in your job, it can be difficult to stay with it. For example, I'm working with a company that is currently trying to grow. The catch is that their original debt holders are pushing an arrangement in which they will not only recoup all of their money, plus interest, but also 80 percent of whatever gain in the company's value has been created by the management team if they sell the business.
You can imagine how demotivating that is to the current leadership team. They have been working hard to grow the value of the business, but the investors are the ones who will reap most of the rewards from that work. That's why I won't be surprised if the CEO and other leaders choose to move on to another job where they can be more fairly compensated for their work.
So, if you ever find yourself wondering if it might be time to move on from your current CEO role, or if you're a board member evaluating the current leadership of a company, consider these three factors: Is the leader still generating new ideas, adding energy to the organization, and fairly compensated? If you find yourself answering no to one or more of these factors, it might be time to make a clean break and start anew. In fact, it might be the best move for everyone involved.