Technology CEOs Report - Tenure

PATTERNS DETECTED

Of the CEOs who have been in their position at least 3 years – the focus of our research – over 87% have been at their companies more than 5 years.

Distribution of CEOs by Tenure at Company

The pattern of tenure at their current company for the CEOs in our study is fairly consistent across company size. The exception is that in larger companies the mix of CEOs who have been there less than 10 years is tilted more towards those who have been there less time - between 4 - 6 years.

Of the CEOs who have been in their position at least 3 years – the focus of our research – over 79% of CEOs have been CEO at their companies more than 5 years.

Distribution of CEOs by tenure as CEO

The pattern of tenure as CEO at their current company is dramatically different by company size. CEOs at larger companies are much more likely to be replaced after 5 – 10 years. Longer tenure at companies with revenues between $100 M – $1 B reflect that over 50% of these CEOs were founders.

Our comparisons in this research are primarily among the 38 public technology companies in New England with at least 3 years of reported results for the current CEO. It is important to observe that including the 13 companies who had replaced their CEOs in the last 3 years (with an average tenure as CEO of .85 years), the average tenure overall as CEO was 5.4 years

SO WHERE WERE THE DIFFERENCES?

Not surprisingly, the median 3-year growth rate was smallest for companies that replaced their CEO in the last 3 years.

Company performance comparison by CEO tenure group

  • While some CEOs were replaced due to death or age-related retirement, most CEO replacements could be tied to company struggles to reach growth targets.
  • It was also surprising to see that the median 3-year growth rate for CEOs who have been in the saddle for 3 – 6 years was significantly higher than that for longer-tenured CEOs.

The difference in median 3-year growth rate was much less for companies with revenues between $100 M – $1 B.

company performance comparison by CEO tenure group - company revenue $100m to $1b

The difference in median 3-year growth rate was markedly greater for CEOs who have been in the saddle for 3 – 6 years in companies with revenues over $1 B.

company performance comparison by CEO tenure group

In the chart below, we compare the 3 year growth rate for the companies that recently changed CEOs for the 3 years before the change, with the growth rate since the new CEO – normalized to a 3 year growth rate – in order to compare it with the last 3 years of growth for the companies with long term CEOs.

contrast company performance before and after CEO replacement vs. companies with long term CEOs

Comparing companies with recently changed CEOs against companies that had CEOs in place for at least 3 years is tricky, since there is no 3-year track record for the same period.

The story shown here is that:

  • most of the companies who changed CEOs in the last 3 years were growth challenged (the company growth slowed before the transition)
  • things have improved slightly after the CEO change
  • but growth remains slower than at companies with CEOs who have been in place at least 3 years.

The implication is that when CEO transitions result from growth shortfalls, it can take a period of time to show significant improvement.

KEY TAKE-AWAYS

Although there is much talk recently about the average tenure of CEOs declining, this trend is not as strong among technology companies. Only 25% of these companies changed CEOs in the last 3 years and in 4% of all companies, the CEO transition was due to a death of the founder.

However, it is the case that CEOs who have been in place between 3 – 6 years outperform their peers with longer tenure as CEO, especially in the larger companies.