It was easy to miss, since the story was relegated to the Siberia of news coverage, page two of the business section of The New York Times. It reported — in 219 words — that the board of one of the largest and best-known industrial companies in the country had fired its CEO after less than a year on the job, as well as the CFO.
The news amounted to another drop in the ocean of stories in recent years about the increasingly precarious tenure of chief executives. While it highlighted the effect on the firm and the CEO, however, it also touches on a key corollary phenomenon for boards to consider: the impact that rapid leadership turnover is having on other C-Suite officers.
According to a Korn Ferry survey, the average tenure of CEOs declined 14% in just the two years from 2016 to 2018, to 6.9 years, and the drop is continuing. But the tenure of key C-Suite leaders is commonly even shorter. Chief financial officers stay in their roles on average 4.7 years, Korn Ferry found, while chief marketing officers and chief human resources officers have an average tenure of less than four years.
“What this means is that the more strategic boards are taking C-Suite succession very seriously,” says Tierney Remick, vice chairman of Korn Ferry’s Board and CEO Services practice. “The board is focused on C-suite development and an executive team that is more enterprise minded.”
Ram Charan, an advisor to CEOs and boards, says the averages actually conceal a somewhat worse situation, since the length of tenure tends to bunch up in most instances at around three years or around eight years. Those very short tenures expose boards to criticism for, in effect, having made a mistake in their previous CEO hires, and then having to go through the challenging process all over again, but under even greater pressure and scrutiny.
Ultimately, Charan says, this lurking instability is an issue that boards need to address by holding CEOs accountable both for developing a strong succession plan long before giving thought to stepping down, and for ensuring that the C-Suite is filled with talent and managed to operate as a team. This can help mitigate the impact on the C-Suite and the company when a CEO unexpectedly departs.
“That creates a lot of instability and turmoil for the CEO’s direct reports,” says Charan. “The C-Suite people quickly start looking and may go somewhere else. The board should not dictate but should hold the CEO accountable for the quality of the team.”
Critical to this management responsibility is making sure that the C-Suite leaders are not overly specialized and do not focus on their functions to the exclusion of broader corporate goals, says Remick of Korn Ferry. “Before, the focus really was on functional expertise, but now it’s more of a collective leadership model,” she says.
These executives must be motivated by the CEO to help achieve important objectives more quickly than in the past, but also to build the skills needed to step up to the CEO’s job if there is unexpected turnover.
“Today, even if you’re the CFO, you need to think like a CEO and understand how your actions and performance affect other parts of the business,” says Michael Useem, a professor at the University of Pennsylvania’s Wharton School and director of the Center for Leadership and Change Management. “What this means is you have fewer years to learn the ropes and mature as a manager because of the higher turnover. But they have to be taught that they represent the company, not just one function.”