Should CEOs Have Term Limits?

By Mike Myatt, Chief Strategy Officer, N2growth

I 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 anyway, who needs CEO Term Limits? 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…