The CEO Life Cycle: A Study of Performance over Time

Astonishingly, this study from Harvard Business Review suggests it can take 10 years in the position before a CEO really shines. Before that there are some potholes and bumps that must be navigated. 

The executives who appear on Harvard Business Review’s 2019 list of best-performing CEOs in the world show remarkable longevity in their roles: The average honoree has been CEO for 15 years, more than double the S&P 500 average in 2017 of 7.2 years. All these people have created tremendous value during their careers—but like most other CEOs, many have experienced short-term ebbs and flows in performance. For boards, that can create a quandary: How to tell when a CEO is suffering from a negative blip versus a longer-term problem, and how to react? These CEOs’ stellar career numbers can create another issue: How does a board know when it’s time for a high-achieving leader to step down?

Very little data exists on how CEOs tend to perform over time; CEOs, directors, and investors often fill the knowledge vacuum with anecdotes, assumptions, and rules of thumb. For instance, when we asked CEOs about the ideal tenure for the role, many mentioned the widely touted seven-year average.

When we surveyed directors, they said that CEOs generally should leave the job after 9.5 years—a point at which, many believe, performance typically plateaus. Why these expectations? No one has a compelling or evidence-based answer. They are simply conventional wisdom.

To better understand the typical course of value creation over a leader’s tenure, we launched what we call the CEO Life Cycle Project. Our team of researchers tracked year-by-year financial performance over the complete tenures of 747 S&P 500 chief executives and conducted 41 in-depth interviews with CEOs and directors about their experiences. (See the sidebar “Our Methodology.”) The study reveals a surprising pattern of headwinds and tailwinds that CEOs are likely to face during their years in the role and upends some common views about CEO tenure and value creation. For example, it suggests that some boards part ways with a strong CEO too early after a predictable and often temporary performance slump, while others tolerate a mediocre performer for too long.

Understanding this pattern—and the critical moments when performance tends to shift—will enable a new dialogue between boards and CEOs. Recognizing the typical stages of value creation can empower boards to drive accountability, support CEOs at each stage in the best possible ways, and think about the sustained success of the organization. For CEOs this framework can help build trust and transparency with directors, manage expectations, adapt to the changing context of their tenure, and assess, as one CEO told us, “the incredibly difficult question of ‘Are you still the right one for the task ahead?’” Rarely do any two CEO tenures look alike. Each leader is on his or her own journey and faces very specific circumstances. Still, by comparing CEO performance on the basis of years in office rather than calendar years, and by viewing a composite of individual journeys, we have identified five distinct stages of value creation that many CEOs will experience during their tenure.

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