CEO tenure is declining — and it's probably for the better, according to The Wall Street Journal.
Chief executive turnover rates hit a four-year high earlier this year, after 450 CEOs of U.S. companies departed in the first four months of the year, Challenger, Gray & Christmas reported in May. By mid-September, the consultancy and executive coaching firm reported 81 CEO departures from hospitals alone.
As the pace of CEO churn picks up, tenure declines. WSJ notes GE as an example: GE's board booted John Flannery from his role as CEO on Oct. 1 after just 14 months on the job. His predecessor, Jeff Immelt, spent 16 years in the role, and the CEO before him, Jack Welch, held the job for 20 years.
But 14 months is short even by market standards. The median length of CEO tenure was five years in 2017, WSJ reported, citing data from Equilar. This is down from six years in 2013. Five-year tenure is close to what WSJ deems the "optimal tenure" for CEOs, citing research published in Harvard Business Review. Researchers found CEOs whose tenure stretched beyond the optimal 4.8 years usually produced diminishing returns. This was because CEOs tend to be more open-minded to different opinions and ideas early in their tenure. As the years go on, executives tend to become more risk-averse, according to the report.
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