STUDY DETERMINES IDEAL LENGTH OF CEO TENURE FOR OPTIMAL COMPANY PERFORMANCE

A New Zealand-based study conducted by a leading executive recruitment firm has found there is no ‘magic number’ for CEO tenure, in contrast to international reports which recommend five-year terms. The study examined leadership turnover and total shareholder return from 2000 to 2013 among the top 150 companies in New Zealand as determined by revenue and market capitalisation.

 

Average CEO tenure was found to be 6.4 years, whereas the Harvard Business Review in 2013 found that Fortune 500 CEOs held the corner office for 4.6 years. The Auckland-based executive search and board appointments practice SEQEL Partners, in conjunction with leading funds management organisation New Zealand Funds Management, assessed the economic performance of the listed companies for which such information is available through the NZX 50. Economic performance was measured by total shareholder return.

 

“It’s true that long-term tenure may hurt a company, as enthusiasm is replaced by established routines,” say the study’s authors, Don Jaine and Mark Ashcroft of SEQEL Partners.

 

“However, the New Zealand companies that measurably out-performed the market have long-serving chief executives, particularly Don Braid at Mainfreight, Simon Challies at Ryman Healthcare and Mark Waller at Ebos. These are three of the top-performing CEOS of NZX-listed companies based on total shareholder return, and all were internally promoted.

 

“On the flip-side, the poorest performing companies have a mix of either long-serving or fast-turnover CEOs. Taken as a whole, our data suggests that there is no strong correlation between CEO tenure and organisational success.”

 

Multinational companies such as banks, petroleum and other infrastructure companies have faster turnover of CEOs in New Zealand, and most are internal appointments from offshore. These offshore-sourced appointments skew the average tenure downwards.

 

The tenure finding has implications for business and board practices, Jaine and Ashcroft point out.

“From our knowledge of the CEOs involved in this study, we conclude that leadership attributes are more important than tenure per se.

 

“The market-leading CEOs have common capabilities, such as inspired leadership, passion, persuasion, service, innovation, persistence and outstanding commercial acuity. Boards should seek to appoint leaders with these qualities, and consider CEO succession after five to seven years in order to strike the balance between dependability and vitality.”

 

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About SEQEL Partners

SEQEL Partners is a specialist boutique executive search and board appointment practice based in Auckland with a national client base. Alongside its core activity of appointing CEOs and senior managers, the firm’s recent non-executive director appointments include individuals for The Warehouse, Port of Tauranga, SKY Television, Freightways, Ballance Agri-Nutrients, Beca Group and a number of private companies.

At SEQEL we are uncompromising in our search for exceptional leaders - executives with the track record and pedigree to deliver against our clients' business objectives.

SEQEL passionately believes that for corporate organisations, private equity firms and large private companies to sustainably lead their market sector… there must be no compromise in searching out the very best senior executive and governance talent – whatever it takes.

 

What we do:

 

Executive Search:

We consistently search, identify and appoint superior senior executive talent for an exclusive group of companies operating in New Zealand.

 

Board Appointments:

We provide governance solutions, both non-executive directors and advisory board members.

Leadership Succession:

We assist the New Zealand owners of very large privately-owned companies to transfer leadership and/or equity.