When experienced leaders are backed against the odds and they win, it makes for a fairy tale. But now, American Democrats must be thinking, “Shall we tell the President”?
Statistically, Rohit Sharma has a 75 per cent win ratio as a captain across all formats. But persisting with him, Rahul Dravid and Virat Kohli after the 50-over World Cup final loss at home was a brave call. Most, including me, felt we should have sent a younger team to the T20 World Cup just like we did with Dhoni and Co in 2007.
Not all enterprises can afford to bet on extended tenures for their leaders like the BCCI successfully did this time!
How long is too long for any leader to carry on?
The Tenure Paradox
A 2021 study by researchers from Boston, Cologne, St. Gallen, and the Karlsruhe Universities examined S&P 1,500 companies over 25 years and found that, on average, a company’s value peaks and plateaus around the CEO’s 10th year. Try telling that to the Microsoft Board, where Satya Nadella has just crossed 10 years. We all know he is onto another jackpot with OpenAI after LinkedIn. Jamie Dimon is 18 years into his job as CEO, and JP Morgan Chase’s market cap is almost double its next peer, Bank of America, where the CEO too is almost 14 years into his job. Who will tell the board of the two largest American banks that 10 years is the average CEO tenure for 80 per cent of the S&P 1,500 companies?
But if you have just begun to think long tenures are impactful, hold on. A 20-year study of US CEOs shows that a long-tenured CEO’s successor usually performs poorly. Researchers from the Universities of Sussex, Lund from Sweden & the Hanken School of Economics in Finland find that under the successor of a long-tenured CEO, a company’s “performance and stock returns are significantly lower, restructuring costs are higher, ‘big baths’ are larger, and firm recovery is slower.” As the years go by, the company’s best potential CEO successors may get tired of waiting and go elsewhere. Sounds familiar?
Yes, remember when Nikesh Arora quit SoftBank once he knew founder Masayoshi Son wasn’t relinquishing the CEO post? Palo Alto, the company that hired him as CEO, has grown its market cap six times since he took the reins. In this case, not just the hiring employer, the employee gained too. Last year, Arora’s compensation was reported to be the second highest paid to any CEO in the US.
Career Compounding
If you think only frequent job changes get you to better places, think again. Brian Moynihan joined Bank of America in 2004 and became the CEO much later in 2010. He definitely benefitted from staying, and the bank is in an enviable No.2 position. It’s understandable to raise an eyebrow when CEOs hang around longer than they should. But some of us frown at employees who have been there for decades and think of them as furniture who don’t move, even to the extent of ridiculing them that they may not have been capable of getting offers from competitors. One of the misconceptions is that we stagnate working in a single company for long.
However, working in a growing company for a longer time will expose you to various contexts of the organisation – from starting up, fundraising, turnaround, overseas expansion, going public, or doing an M&A. Some of us believe that longer tenures in growing companies donning multiple roles are equivalent to working for different employers. This makes for a good argument for staying but misses the crucial point of the change management required to adapt to different cultures.
Encashing tenures
Do long tenures in a single company hurt the chances of being promoted as a senior leader in your organisation or getting hired outside? Look at the new CEOs of Tech Mahindra and Cognizant. Both spent two decades at Infosys before they became CEOs of two marquee-listed IT Services brands.
The long internal wait, though, frustrates many of us, though it also brings in rewards. Wipro’s Srini Pallia became the CEO after 32 years at the firm. The career compounding and encashment of long tenures is the most underrated aspect of a leadership career. However, not everyone is cut out for this wait as it is usually uncertain and contextual. In the last 12 months, almost 4,000 CXOs changed jobs in India, which either points to the opportunities available or the impatience to wait it out.
So, think again the next time you want to criticise a senior colleague who stayed longer. Their next big role may just be around the corner right here or with your competitor!
Remember the line from Lemony Snicket’s movie A Series of Unfortunate Events: “There are times to stay put, and what you want will come to you, and there are times to go out into the world and find such a thing for yourself.”
(Kamal Karanth is co-founder of Xpheno, a specialist staffing firm)