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Of the many worries that whirl around the minds of chief executives, few are more unsettling than the question of succession. Having toiled their way to the top of the corporate ladder, many bosses struggle to imagine relinquishing control and placing their legacy in the hands of another.
A growing number of America’s bosses have instead opted to defer the matter altogether. By the end of last year 101 s&p 500 ceos had held the corner office for more than a decade, up from just 36 ten years earlier, according to figures from MyLogiq, a data provider. Although some, like Warren Buffett, the longest-serving of the lot with 53 years on the clock, built the companies they run, most are hired hands. Jamie Dimon of JPMorgan Chase, a bank, Shantanu Narayen of Adobe, a software firm, and Chris Nassetta of Hilton, a hotel franchise, are among the many who have outlasted their predecessors. Such long-serving bosses have pushed the average tenure of s&p 500 top dogs up from six years to seven over the past decade.
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Some bosses have become infamous for their reluctance to move on. Earlier this year Howard Schultz ended his third stint as boss of Starbucks, a coffee chain. Late last year Bob Iger took back the reins at Disney, a media giant, from his chosen successor, Bob Chapek. In July his two-year contract was extended until the end of 2026. The question of succession has long loomed over Mr Buffett’s conglomerate, Berkshire Hathaway.
Of course, plenty of companies are well served by ceos who hang around. And with populations healthier for longer, forcing bosses out once they reach an arbitrary retirement age, as many firms still do, is unnecessary. Yet the lengthening tenures of America’s bosses is a cause for concern.
In 1991 Donald Hambrick and Gregory Fukutomi, then both at Columbia Business School, published an influential paper on the “seasons” of a ceo’s tenure. They suggested that, in the early years, performance improves as the boss learns the ropes, but later declines as they become more resistant to change and less engaged in the job. A paper in 2015 by Francois Brochet of Boston University and his co-authors sought to quantify that tipping-point in performance by studying the relationship between market value and ceo tenure among listed American firms. They found that ceo performance rose through roughly the first decade on the job before flattening off, then beginning to decline after around 15 years.
“Eventually you lose the oomph and the creativity,” says Bill George, a former ceo of Medtronic, a medical-technology company, who now teaches at Harvard Business School. That vigour is especially crucial when a company is in need of reinvention. Microsoft’s transformation under Satya Nadella into a cloud-computing giant at the vanguard of artificial intelligence may never have happened had Steve Ballmer, who led the business through a period of stagnation from 2000 to 2014, stuck around.
An extended stay carries risks even when a ceo’s long stint seems justified by stellar performance. Mr Iger delayed retirement three times during his original 15-year spell as Disney’s boss, leading a number of potential successors to try their luck elsewhere. Boards waiting to find a replacement ceo with experience comparable to the incumbent’s necessarily find it harder the longer they delay, notes Jason Baumgarten of Spencer Stuart, a headhunting firm.