When is the right time for a CEO to go?

updates + insights » When is the right time for a CEO to go?

Last week’s surprise announcement of the resignation of Air New Zealand chief executive officer Christopher Luxon has raised the question – when is the right time for a senior leader to move on from a role?

Mr Luxon announced his decision following a seven-year reign in the role, saying that he felt the timing was right for a new leader to take over and put their stamp on the organisation. During his tenure Luxon has done just that, leading the business through a period of success and growth. While he has successfully delivered a number of new initiatives, the timing was unexpected with Luxon appearing to be leaving on a high point. Similar in some ways to Sir John Key whose own surprise departure as prime minister in 2016 was during a period of success for both him personally and the Government.

Aside from being in a role that just isn’t right for you or exiting a business under a cloud of controversy when is it time to call time?

Research from business magazine Forbes suggests that the average tenure for CEOs in S&P 500 companies is 9.7 years. This figure is down from 10 years back in 2000 which they argue is due to a more competitive business environment. It’s also significantly higher than the broader labour market who remain in roles for around half that time. Locally, PwC’s annual CEO survey shows that New Zealand CEOs are generally more likely to be long-serving (i.e., been in the role for 11 – 25 years).

According to management magazine Harvard Business Review (HBR), seven years plus or minus two is the optimal tenure for a CEO in terms of delivering maximum effectiveness. This is of course dependant on the lifecycle stage of the business and the particular challenges to be overcome. HBR also describes three distinct CEO phases:

Entry or honeymoon period: when the CEO is learning and innovating the most, possibly realigning senior teams to position the business for the future.
Consolidation: relationships have been formed and the CEO can expect to see the results of any change in direction, strategy and style. This is the stage where complacency and rigidity could start setting in.
Decline: this is obviously the stage where problems start surfacing with a lack of new ideas or future planning – performance starts to slip, or the role becomes routine. A lack of motivation could also lead to bad decision making in terms of pursuing risky business opportunities.    

So, what does this mean for Boards? Ideally, your CEO would self-identify well prior to the decline stage and start looking for that next opportunity, which is what you would expect from a high performer – this could be at the peak of their performance or on the cusp of decline. However, in some cases, the Board needs to take the initiative and make the hard decisions around what is required in their senior leader.    

And in terms of next steps for an outgoing CEO. According to corporate strategist, author and former vice president of J.P. Morgan, Kabir Sehgal “when you follow your curiosities, you will bring passion to your new careers, which will leave you more fulfilled”.

Looking for your next opportunity or need help with succession planning at a senior level in your business, get in touch with us.  

The Decipher Team      

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