When Dave Lewis announced he was stepping down as Chief Executive of Tesco after five years at the helm, he caught many in the retail industry and beyond off guard. On closer analysis, such a departure may not be overly surprising in today’s business environment.
Martin Hess, Chair of IT company OCSL, agrees with the view, put forward by Dave Lewis, that a CEO has a certain window to make an impact. “I think five years is probably the optimum period,” comments Martin. “It gives you a chance to understand the organisation you’re leading and to put in place your plans and strategies and watch them play out.
“With human nature being what it is, you lose a freshness in terms of ideas, energy and the way you approach things. I think it just wanes after about five years.”
There is a different view, of course, whereby the argument runs that CEOs should be given time to implement changes and deliver a vision for a business, which is something that can take much longer.
Dame Alison Carnwath, Independent Director of Zurich Insurance Group, says: “The chief executive is the conductor of the orchestra, the setter of the culture, and I believe there is a great deal of merit in continuity. CEOs tend to get better in their jobs as they go along.”
She argues that the short-term expectations of investors are partly to blame, combined with the attitude of those at the top. “In the last few years in the UK, we’ve seen quite a lot of people who regard being a CEO as a trusteeship or just a project,” Alison comments.
“That’s not what a CEO is – a CEO isn’t there to run a project, [they’re] there to continually add value to a business and make it sustainable for its employees.”
Ready to Adapt
Ideally, a Board should hold its nerve and support a CEO through both the good times and bad, but it’s also a fact that chief executives have different skills and strengths. In fast changing markets, five years can seem like a long time.
It’s a difficult situation to manage. Laurence Vallaeys, Partner for Consumer, Retail, Leisure & Property at Warren Partners, comments: “A change of leadership at the top is unsettling at the best of times, and each change will be followed by changes in strategy, perspective, priorities, culture and so on. It’s a minefield. Having said that, you don’t want a CEO who has gone past their sell by date either."
Laurence also finds that businesses are having to contend with increasing demands from multiple stakeholders, including activist shareholders and investors and institutions with environmental and social concerns. “Throw in a challenging economy and a constantly changing technological landscape, is it any wonder that it’s getting tougher at the top?" she says. "Boards need to make sure chief executives are well enough equipped and prepared for the huge, ever-changing demands of being in the top job."
In such circumstances, a one-size fits all solution for CEO positions is not the answer, according to Ian Durant, Chair of DFS Furniture and Greggs. “Different business scenarios need different solutions and different tenures of chief executives. That's something that every Board I’ve been involved with has been extremely focused on.
“The Board will set out to have an open and honest discussion with the CEO about how long they’ll serve and what the succession planning should be. This continues throughout the tenure,” he says.
Matthew Blagg, CEO of Criticaleye, agrees that increasing external scrutiny is putting intense pressure on chief executives and contributing to the drop in average tenures, but he believes that it’s not just the CEOs who should be taking the flak.
“There’s an anomaly here and that concerns the Board,” Matthew says. “While the tenure of CEOs is dropping, we are not seeing the same for Chairs. Any failure of a departing CEO should be a failure for the Chair, and quite possibly for other non-execs too.
“In my experience, it is better to have a consistency of leadership but because the speed of communications has increased so rapidly, chief execs have become easy targets. Many will already be financially independent, so why would they subject themselves to such levels of vitriol? It’s a very isolating position to be in.”
David Hobbs, Senior Editor, Criticaleye
Next week’s Community Update will take a look at Bringing the Principles of ESG to Your Business.