It’s easy to tell when some things have expired. Stock options. Eggs. Prescription meds. Credit cards. But corporate America has long been stumped trying to find a more elusive expiration date: How can a company know when it’s time for a CEO to go? Anecdotes fall all over the map. Warren Buffett, the longest-tenured CEO in the Fortune 500, has been running Berkshire Hathaway for 54 years, and the stock is still hitting new highs. By contrast, Fred Kindle needed only three years as CEO (2005–2008) to turn around venerable but money-losing Swiss industrial conglomerate ABB and deliver shareholders a 262% total return.
Between those two extremes, many boards default to the mean. The S&P 500 average is 9.2 years, and despite occasional articles exclaiming that CEO tenures are shortening, they aren’t; over the past 20 years they’ve held fairly stable. Robert Stark, a succession expert at Spencer Stuart, believes it’s possible that “the average in and of itself becomes a self-fulfilling prophecy. In the absence of any good insight about how long CEOs should serve, they think, ‘Oh, I should be about average.’ ”
