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Should CEOs Have Term Limits?

Leadership Term LimitsI have read some interesting articles and blog posts of late on the subject of CEO term limits, and felt this topic worthy of discussion. You should know from the outset that I fundamentally disagree with the concept of CEO term limits, and quite frankly I cannot really come up with a valid reason for supporting such a regressive concept. Any such argument in my opinion is rooted either in flawed business logic or politically correct rhetoric (usually one in the same). I would encourage you to read my arguments in opposition to CEO term limits, as well as to think through the ramifications on the corporate landscape if such thinking were to ever take hold…

Okay sure, the topic of CEO term limits makes for a nice sound bite given some of the C-suite debacles that have laundered the front pages of the media in recent times. However it is my opinion that rogue CEOs are the exception and not the rule. Why would we want to institute yet another bureaucratically mandated, one size fits all solution that addresses the symptom and not the problem? My basic feeling on the topic of CEO Term Limits can be summed-up with this quote:

There exists a season for all things, but decisive, prudent & principled leadership never goes out of season.” ~Mike Myatt, 2003

With the average CEO tenure hovering at an all time low, who needs CEO Term Limits anyway? Why would you ever want the person in charge of corporate leadership, vision and strategy to be a lame duck right from the get go? Furthermore, last time I checked a CEO can always be removed for lack of performance, or moral and ethical indiscretions, so what purpose do CEO term limits serve other than to disincentivize the CEO?

The basic flaw in most arguments in support of CEO term limits stems from a belief that tenure is somehow a very relevant metric, and that there is some mystical optimum time to serve. WRONG…The simple truth of the matter is that the time needed to attain performance goals varies depending among other things the age, size and competitive positioning of the company, the industry, sector and vertical, etc. Stating that a CEO of a start-up should operate with the same term limit constraints of a CEO of a Fortune 500 company is very unrealistic and dangerous thinking.

Great CEOs possess the ability to refine their thinking and leadership skills to reflect the evolving needs of the enterprise and the changing global business climate. CEOs that cannot operate fluidly and contextually won’t be effective whether they hold the job for 12 minutes or 12 years. Chronological tenure is not the issue…business savvy, leadership ability, and the ability to provide a certainty of execution should constitute the metrics surrounding CEO performance evaluation.

An additional argument in support for CEO term limits is based upon the premise that the price of CEO terms that last too long goes deeper than the obvious performance metrics…that there is somehow the missed opportunity of a different vision, never heard and never realized. This line of thinking assumes that a CEO is operating statically within a vacuum. Great CEOs are the glue that provides continuity between vision and strategy. Great CEOs provide inspiration and leadership, as well as offer a steady hand at the wheel. They also seek the advice and counsel of their board and executive team in addition to a plethora of outside advisers. Great CEOs adapt, improvise and overcome…they are not static eunuchs operating inside a bubble.

The issue has never been, nor should it ever become, how long a chief executive remains in the position based solely or arbitrarily on the issue of tenure. Rather the issue should be based on something as simple as the following question: does the CEO deserve to keep their job based upon performance?  If you want to drive CEO performance, start by hiring the right person for the job. Then follow-up your great hiring decision by providing the CEO with the tools and resources necessary to get the job done. Compensate the CEO for performance, and hold him or her accountable for a lack thereof…its just that simple.

If you have the wrong CEO replace him or her…If your board of directors is asleep at the wheel and does not hold the CEO accountable shame on them, but CEO term limits…why? The simple truth of the matter is that corporate impatience driven by the short-term mentality of Wall St. is most often times incongruous with the long-term best interests of shareholders. My recommendation is not to hand-cuff or bridle your CEO, rather give the CEO room to lead, maneuver, innovate and succeed. But hey, what do I know?

I’d love your thoughts on this subject – Do you think leadership has a shelf-life? If so why? If not why not? Sound off in the comments below…

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    Patti Blackstaffe

    February 3, 2011 at 12:15 am

    Fantastic article, Mike, as usual.

    I love this part: "Furthermore, last time I checked a CEO can always be removed for lack of performance, or moral and ethical indiscretions, so what purpose do CEO term limits serve other than to disincentivize the CEO?"

    Add to this the fact that every organization has similar but different struggles, one company may take two years to get back on track with a fantastic CEO and another may simply be already close with a CEO who needs to offer little cultural shift but is there to work on the accounting end.

    Your points:
    "Chronological tenure is not the issue…business savvy, leadership ability, and the ability to provide a certainty of execution should constitute the metrics surrounding CEO performance evaluation.

    And what if a company finds or is built by just that person…and loses them to a term limit? Imagine, if you will, Zappos saying… "Well, Tony – we know you are really great at what you are doing, but the shareholders have decided that it isn't all about delivering happiness anymore, we think a term limit on your leadership is a great idea and you have till the end of the year and we are replacing you!"

    Not just one or two of the Zappos employees and their customers would certainly be up in arms. Granted, they are private, not public – however the picture is definitely created for you. The issue is in finding and keeping great leadership – not in limiting it based on a made-up time-frame that has little or nothing to do with the company, business, how leadership is performed or the effectiveness of an individual in the CEO role.

    Thanks again for a fantastic opportunity to comment on a great topic.

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      mikemyatt

      February 3, 2011 at 12:19 am

      Hi Patti:

      Thanks for the great observations and insights. I really like the "what if" Zappos example. Bottom line – there just isn't any upside to CEO term limits. Thanks again for sharing Patti…

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    Ron

    February 4, 2011 at 12:04 pm

    Very thought provoking post, Mike. I agree that a ‘short term mentality is most often times incongruous with long term best interests’. I suppose it’s understandable how such an idea is being entertained today, with the examples of Enron and D.C. politics, but they’re not good, representative examples. It’s not necessary or desirable to throw out continuity in order to retain accountabilty in a business. A better analogy may be found in considering coaches of NFL franchises. Success usually attends those where there’s patience, continuity, and a hands-off policy by the ownership. Ironically, imposing term limits may actually encourage that which you’re hoping to circumvent. I’ve witnessed companies bring in ‘hatchet men’, for a set time, who’ve create unanticipated liabilities precisely because they know their time is short.

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      Mike Myatt

      February 4, 2011 at 2:08 pm

      Thanks for the thoughtful comment Ron. I always appreciate your insights Sir.

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    PoulAndreassen

    February 4, 2011 at 4:05 pm

    This is not just yet another topic on CEO, rather very rare… must read….

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      Mike Myatt

      February 4, 2011 at 4:48 pm

      Thanks Poul – I agree that the assertions in this piece go a bit beyond the norm and address some broader corporate and societal issues. Thanks for stopping by Poul.

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    Tanveer Naseer

    February 4, 2011 at 4:58 pm

    Hi Mike,

    From my vantage point, I see this being an issue of confusing time with accountability, that by restricting the duration a person can serve as the CEO of an organization we’re enforcing a greater degree of corporate/social responsibility. Ironically, I think what we’d be accomplishing is the opposite, as the response to poor performance would most likely be ‘well, they’ll only be in charge for another 1-2 years so let’s just wait this out’.

    When we consider that the role of a leader is to create a vision of what they’d like their organization to accomplish, it does become rather counter-productive to put any time restriction on people serving in these roles. After all, how could we expect employees to support and develop a leader’s vision if its understood that this role is ultimately not regulated by performance, but by a clock hanging on the wall.

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      Mike Myatt

      February 4, 2011 at 5:20 pm

      Hi Tanveer:

      I really liked how you stripped away the confusion that often surrounds the concepts of time and accountability. Well done Sir. Thanks for stopping by Tanveer.

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    William Powell

    February 4, 2011 at 5:10 pm

    I think CEO term limits is an ignorance based concept as well. The bigger problem is giving the CEO too much responsibility and authority. Don’t make the CEO the president and chairman of the board. Diversify those responsibilities.

    A recent study has shown that CEOs who have won industry awards average a 20% drop in performance over the subsequent 3-5 years compared to other eligible CEOs for the same award.

    The CEOs who won awards and still had consistent high performance were supported by a diverse authority structure. THAT is infinitely more valuable and effective than a token gesture like term limits.

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      Mike Myatt

      February 4, 2011 at 5:24 pm

      Hi William:

      Thanks for your astute insights. You are spot-on as usual in pointing out that segregation of duties, responsibilities and authority and prohibit many things problematic with ailing corporations. Thanks for sharing William.

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    Dan Collins

    February 4, 2011 at 5:51 pm

    Mike,

    Term limits are a lazy leadership concept in my opinion based on the thinking that new will translate immediately into growth or improved performance. There are countless studies, particularly in the area of professional sports team management, that refute this notion and in fact lead one to believe that the reverse is true. Often performance expectations and time lines to achieve those metrics once communicated to,and accepted by the CEO, negate any necessity for term limits. We either achieve or we don’t and we either surpass expectations or don’t. Seems to this simple guy that our term or shelf life, outside of moral and ethical turpitude, should primarily depend on that.

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      Mike Myatt

      February 5, 2011 at 3:24 am

      Hi Dan:

      Definitely agree with your perspective…I think your comparison to professional sports is a good one as well. Thanks for stopping by Dan.

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    James Strock

    February 4, 2011 at 6:11 pm

    Totally agree with your excellent points, Mike! If a board is doing its job–a big if to be sure these days!–then a CEO will recognize that s/he is always term-limited, based on agreed metrics. Having official term limits can be self-serving approach by a board, to avoid the hard decisions they’re entrusted to make…like any self-serving action, it will end in tears…

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      Mike Myatt

      February 5, 2011 at 3:38 am

      Hi Jim:

      Your comment reminds me of one of my favorite quotes: “Leaders who fail to realize the importance of personal accountability will ultimately face the imposed accountability of others.” Thanks for the insights Jim…

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    Dan Rockwell

    February 4, 2011 at 7:30 pm

    Mike,

    I’m a little late to this party. However, I’ll jump in since the water looks fine.

    It seems to me that one motivator for term limits is to protect organizations from abusive leaders. The answer isn’t term limits, the answer is character.

    We wouldn’t have this conversation if it wasn’t for unethical, manipulative, deceptive, self-centered, egotistical, know-it-all leaders … hmmm, that felt good.

    As you indicate, performance is a context sensitive thing. It depends on economic, regulatory, social, and other factors. Through it all, we need persons of character at the wheel.

    It’s true that competence is key to performance. But character and competence make for long-term success. (I use success in the broadest of terms)

    Well, I’m climbing out of this pool. That felt good!

    As always you have my best regards,

    Dan

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      Mike Myatt

      February 5, 2011 at 3:25 am

      No sense sticking your toe in the water when you can dive right in…Thanks for taking a deeper dive (no pun intended) on the character issue. Well done Dan.

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    V V

    March 27, 2013 at 12:10 pm

    You miss the point completely. All non-obvious decisions can go either way. They could be right or wrong and have a lot to do with the circumstances that are outside the control of the CEO. The idea of changing the CEO is the same as the idea of changing the President. Some fresh air. We have had a whole lot of CEO’s in recent times who all follow the same mantra! (Focus on share price and layoffs). Time for some fresh air!
    The comparison to Professional Sports teams is ludicrous at best and devious at worst. In sports the game is only hours long and the season just a year. They also do not mess around with careers of a large body of people.

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