. Reflect on the differences in the typical tenure of a CEO in Europe as compared to a CEO in the United States. What are the implications of these tenure differences for firm strategy? Please reply with a 600-800 words
In the recent times, we have seen that many CEO’s are retiring early. This is mainly due to rise in shareholder expectations and an emerging culture of short-termism. This change has been mostly noticed in European CEOs who have entered into early retirement.
Fortune’s CEO data indicates that the 500 largest companies in the U.S. have a median CEO tenure of 4.9 years while according to data collected for Reuters by Relationship Capital Management firm BoardEx, average tenure of European CEOs is 4 years.
Before we dwell further on this, it is important to know that chief executives fall into four primary categories in terms of their tenure:
Great examples of monarch are Boston Consulting Group Founder Bruce Henderson and Occidental Petroleum’s Armand Hammer. They were brilliant visionaries and truly indispensable for their companies. Monarch CEO’s are driven by their lasting legacy and heroic status. A classic example of this is Robert Iger who took Disney to historic heights through his 20-year reign.
Steve Jobs, Micheal Dell fall under this category. By returning to office at a time of crisis, they have lead their companies to glory and have credibility to make major changes at their companies.
Intel’s Andy Grove and Craig Barrett, Reuben Mark at Colgate-Palmolive, McKinsey Founder Marvin Bower, Eric Schmidt of Google, and Bill Gates at Microsoft are few great examples of ambassadors. They are statesperson and mentors whose presence has led to increase in shareholders return.
Examples include Jim McNerney of 3M then Boeing and Anne Mulcahy of Xerox. These leaders have short, but highly effective terms of office. Governor CEOs look for new opportunities in other areas.
Thus, there is no definite answer to what should be the CEO tenure. A firm can perform well with CEO’s wide range of term of office.
CEO tenure has a profound effect on firm’s strategy and performance. It depends upon two aspects:
- A firm’s relationship with one of its most important internal stakeholders—employees. Without the benefit of positive employee relations, longer CEO tenure can rarely translate into superior performance automatically.
- A firm’s relationship with its key external stakeholders—customers. Without attracting customers who are satisfied with the firm’s product offerings, even seasoned CEOs cannot create competitive advantages for their firms.