Researchers Suggest CEO "Seasons"
â€œAt some point, the positive effects of a CEO's continuing tenure...are outweighed by the negative effects. Job mastery gives way to boredom; exhilaration to fatigue; strategizing to habituation. Outwardly such executives may show few signs of this malaise....inwardly...openness and responsiveness to stimuli are diminished. The continuing incumbency of these executives is dysfunctional for the organization."
Columbia University's Donald Hambrick and Gregory Fukutomi reach this conclusion after developing a five-stage model of "The Seasons of a CEO's Tenure," recently published in the Academy of Management Review. In stage one, the new CEO devotes attention and energies to responding "to the mandate of the board or the predecessor CEO." The mandate may call for continuity, dramatic change, or something in between. In any case, the new CEO works to develop knowledge and legitimacy.
Stage two deals with "experimentation," the most likely time for open-mindedness. In this season, the CEO retains flexibility but has gained sufficient credibility to have creative impact. During the third stage, "selection of enduring theme," the CEO recrystallizes the theme that characterizes his or her tenure, and in stage four, called convergence, that theme is incrementally bolstered and reinforced.
The fifth stage, dysfunction, occurs when the CEO is at the peak of power but, set in his or her ways and views, no longer grows in knowledge, and is increasingly unmotivated and out of touch. The authors suggest that these symptoms result not from age but from length of time in the position.
CEO performance peaks in stage four and is lower both early and late in the CEO's career, according to the authors. Hambrick and Fukutomi postulate that in dynamic environments, CEO performance declines earlier and more steeply, and that the longer the CEO's tenure, the stronger the association between CEO and organizational characteristics.
Recognizing some variation in their model, the authors point out a situation where the dysfunction stage is present from the outset of a CEO's service. This can occur when the new CEO is "a long-term insider who had been a close understudy, even a clone, of the preceding CEO." Obviously, family businesses are vulnerable to this circumstance.
To lengthen and strengthen CEO effectiveness, the authors recommend forming a strong board of directors and an assertive and diverse top management team. These mechanisms hold CEOs accountable and do not allow complacency. They also suggest a strong mandatory retirement policy as "the only realistic way to ensure that this person leaves office before his or her performance deteriorates."
In family businesses where CEO tenure stands to be generational and substantially longer than in other firms, Hambrick's and Fukutomi's insights have added gravity. Two characteristics we frequently find in successful family firms are a mandatory retirement date and conscientious effort by the CEO to be accountable to others who challenge the currency of his or her thinking.
For the complete article, see Hambrick, Donald C. and G.D.S. Fukutomi, "The Seasons of A CEO's Tenure," Academy of Management Review, Vol. 16, #4; October 1991, pp. 719-742.
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