The March 2013 issue of Harvard Business Review described a research study which found that CEOs who have been in their jobs for more than five years perform more poorly than those whose tenure has not yet reached the five year mark. The article, “Long CEO Tenure Can Hurt Performance” by Xueming Luo, Vamsi K. Kanuri, and Michelle Andrews, explains that this occurs because CEOs often focus heavily on customer relationships early in their tenure, but are more internally focused after being in the job longer.
Although the study’s authors did not recommend limiting CEO tenure to five years, some people may easily conclude that the study implies corporate boards should strive for CEOs who have not been in their positions a long time. But, should people conclude this?
No, they should not. And, neither do the study’s authors. But, this study illustrates why it is so important to properly interpret research data, since research can easily be misleading.
Rather than take this study literally and strive to replace all CEOs before their fifth anniversary at the top, boards of directors need to treat this study as one piece of evidence. And, they need to consider other evidence as well.
For example, boards should not ignore the fact that there are CEOs like Steve Jobs. Leaders like Jobs may be the exception and, thus, may be relatively rare. But, their tremendous accomplishments should not be overlooked when considering CEO tenure.
Jobs achieved spectacular results at Apple’s helm. Some of his greatest achievements occurred closer to the end of his tenure at Apple. And, Jobs had been CEO for well over 10 years when he turned Apple into the world’s most valuable company, surpassing Exxon-Mobil. Extreme success with products like Apple’s iPhone and iPad happened when Jobs was well beyond five years as CEO.
Would Apple have achieved this iconic and profitable position if its board had taken studies, like this one on CEO tenure, literally?
It’s unlikely. In fact, one of the biggest business successes of all time might not have happened if Apple’s board had restricted Jobs’ tenure to the alleged research based optimal of 4.8 years. Fortunately, the Harvard article does not call for limiting CEO tenure, but instead recommends that boards be aware of the issue, be watchful for performance change, and structure incentives to encourage stronger results later into a CEO’s tenure.
Being aware of this issue and watchful for its impact is fine, but it is of utmost importance that issues like this be considered on a case by case basis. CEO evaluation should be based upon the particulars of the situation, and should not rely excessively on potentially misleading research studies.
Furthermore, the bigger issue here is the broader one that goes far beyond the study’s CEO tenure topic. The bigger issue is that data must be interpreted properly, and that there are many situations like this one, where there is potential to misinterpret research data. Misleading impressions can easily occur. With the advent of Big Data, understanding what the data means and interpreting it properly will be increasingly important.
