Learning’s Place During CEO Transitions

Yaarit Silverstone, Neil Lawson and Craig Mindrum - 8/24/07

Because CEO transitions now occur more frequently, it is especially important for companies to execute those transitions effectively.

Embarking on a Learning Journey

Times can be tough when a chief executive officer leaves a company, no matter the circumstances — people usually dislike change, and the fear of the unknown abounds.

A recent report based on surveys of current and former CEOs discusses ways that executives can make the most of the “golden time” between winning their company’s senior position and actually starting work. But how golden is it, really?

As they look at the statistics about the ever-shrinking tenure of the average CEO and the often insurmountable challenges faced at the top level, newly appointed CEOs might be forgiven for looking at that transition time in slightly more ominous ways — perhaps as a soldier reporting for duty or a mountain climber about to begin the last stage of a difficult ascent.

The average tenure for an outgoing CEO now stands at a very brief 5.9 years, down from about 12 years just a decade or so ago. About one-third of the time, the tenure is fewer than three years.

In the United States last year, the number of CEO departures broke all records, and that has doubled in just two years. By the middle of last year, CEO changes were averaging six per day. The health care industry leads in the number of executive transitions, followed by computers and high-tech, then the financial services industry.

Because CEO transitions now occur more frequently, it is especially important for companies to execute those transitions effectively. As with so many types of major organizational change, the first few months of a CEO transition are critical — mistakes made during this period may be difficult to overcome.

For example, one CEO notes that in his eight-year tenure, he never quite recovered from his “wrong response” to a question from his board about performance reviews. He said he was in favor of performance reviews, and a few board members subsequently suspected him of harboring secret plans to push them out.

More generally, the departure of one CEO and the arrival of another places many stresses on a company. Productivity and morale might suffer, especially if the CEO change comes as a result of business decline or controversy, such as the stock options backdating scandal last year that led to the departure of a number of high-ranking executives.