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CEO tenure: How long is too long?

Sarah Stevenson | 13 April 2021

The end of 2018 telegraphed an opportune time for change in housing; 44 CEO’s within the industry with a combined 511 years’ experience (Inside Housing) between them had departed within the previous three years. At the time the average tenure for a FTSE 250 CEO was below the five-year mark, in stark contrast to the 11 years 7 months average for these outgoing housing stalwarts.

I caught up with some of the sector’s most prominent leaders to ask their view on whether this marked a watershed moment and whether they believe that CEOs should be subject to a maximum term.

 

Would this provide a watershed moment?

The predictions included that the fresh talent would be more inclined to self-select out of the top seats earlier than their predecessors. Also, that boards would simultaneously see the value of increased executive talent mobility to enable them to keep pace with the only certainty in the sector: change. 

It is too early to tell if this has been born out, and let us not forget that the sector has reaped enormous benefits from these highly experienced and typically values-based individuals; this constancy is all the more poignant when considered against the backdrop of an average housing minister lasting just 14 months.

Notting Hill Genesis’ Chief Executive, Kate Davies, commented: “If they are talented and committed, they can grow with the company. They identify strongly with it and it is often the case that people do business with people they know, like and trust. These relationships can build up over many years and can benefit the organisation”.

Adding to the conversation, Southern Housing Group’s Chief Executive, Alan Townsend, said:

“There needs to be a balance between corporate knowledge and new ideas.”

While Swan’s 17 Year CEO John Synnock pointed out: “The CEO has a unique perspective; they can work 70 hours a week of the organisation, which is very different from the board.”

Ex-regulator and Paradigm CEO Matthew Bailes suggested that the danger comes when “people get stale and start making assumptions that are invalid and stop challenging first principles; in more positive terms, that new blood is needed to help mitigate these risks and spot new opportunities”.

The issue is well-rehearsed when looking at non-executives (NEDs) with the length of tenure in a particular organisation restricted in a number of codes of governance, including the NHF code. 

Kate Davies agrees: “[This mechanism] ensures that the Chairs and board members are less likely to be ‘captured’ by the organisation. They will find it easier to maintain their independence if they do not get too comfortable.”

 

So, if there are agreed benefits for NEDs, why shouldn’t a fixed or maximum tenure be applied to CEOs?

Firstly, the practical bit: Unlike NED board members, for chief executives, this is their livelihood. Staff have employment rights and, if they do their job well, the security of tenure.

But maybe this is part of the problem?

Speaking from the perspective of having an earlier career in the commercial world, Platform's Chief Executive, Elizabeth Froude, observed: “A commercial CEO’s seat is a lot less stable; with the underperformance of the organisation is often a quick exit. In housing, it is less palatable to simply dispose of your chief executive like a football manager.”

However, Froude goes onto to say fixed terms are not practical given that “many start their tenure in the midst of mergers, crises or restructuring events and so several years can be consumed in that from the outset. Where the 'value-add' a good chief executive brings is after that”.

 

How do boards measure the continued value-add?

The regulator is the ultimate judge of how well-governed and financially viable an organisation is, but outside of this, customers rely on the mechanisms and competence of the board to assess this. During the appraisal process, a chair would be expected to challenge a CEO who has not delivered what they promised to achieve, or if relationships had broken down, and if serious they would agree terms and depart.

But Synnuck suggested for those CEO’s without an obvious failure, but where they no longer appear to be adding incremental value, the fixed term “would be an opportunity to scrutinise this point, with less bloodshed”.

Townsend added: “Chairs need to continue to provide their CEOs with challenge. This will help ensure the organisation continues to improve. A key consideration is what is going to be better for tenants. “

He added that boards should be asking how they can best serve their customers for the future: “Ensuring boards are connected with tenants is the way forward, which the white paper reinforces.“

 

The importance of self-determination

Synnuck suggested: “A key responsibility of the chief executive is to help an organisation to adapt and promote long term thinking, even if they are not the person to take it forward. People need to be selfless and should instinctively know if they are or not.”.

David Montague, longstanding ex CEO of L&Q revealed that, like his predecessor, he decided a term he wanted to be at the organisation – 10 years. As it stood, intuitively it was not the right time for him to stand down – the rent cuts, Grenfell Fire and the pandemic were challenges he wanted to tackle before he moved on. Montague and Synnuck were the most open to the concept of a fixed-term tenure; perhaps from the benefit of their lengthy sector insights. Both agreed that there were a number of examples where individuals had outstayed their welcome.

Montague said:

“The CEO must use their own judgement; we all have a responsibility to move on.”

He too suggested some questions chief executives should ask of themselves: “’Am I prepared to see through the next five-year plan? If not, I should step aside.’ and ‘can I commit to this organisation with the same degree of passion I did two years ago?’”

Having operated as a CEO under a three-year renewable fixed term in his early career at a Housing Action Trust, whilst Catalyst’s Ian McDermott didn’t consciously lead the organisation any differently from if it were an indefinite term; he felt as a young CEO, it provided a helpful discipline and a natural point of reflection to consider progress and ask himself some searching questions.

 

Easiest way to achieve diversity?

Montague cited a fixed tenure as a key mechanism for enabling diversity: “A fixed tenure will ensure that the CEO doesn’t plateau, encourage renewal and excitement and importantly create the opportunity for more women and BAME candidates to get the top job […] people want to work for a more ethical and diverse organisation, where change will be demanded -  the days of quiet reluctant acceptance have long gone.”

Whilst Davies recognised that people moving on infrequently means it can take longer to make senior staff teams more diverse, she went on to say: “I don’t think forcing the old white guys out is the answer, but we do need to be more creative in approaching this issue at the director and assistant director levels.”

 

So, is this part of the solution in the absence of fixed terms?

A balanced team

Notting Hill Genesis’s CEO is renowned for her talent spotting. Davies said: “Experience is a valuable asset and the best boards and director teams, in my view, include both long-standing members and fresher faces – a balanced team is usually more creative than an old, tired, perhaps self-satisfied team, or conversely a group of enthusiastic, but inexperienced youngsters.”

Bailes suggested that some element of churn in the director team is healthy, and Townsend concurred that a “more proactive approach to talent management and succession planning was crucial” to ensure a balanced team.

McDermott added that as well as a mixture of tenures in the top team, “as CEO you need to consciously surround yourself with people who balance out your strengths and weaknesses; it’s a positive not to have the best idea in the room. Plus it is these people who stop you falling into the trap of believing your own hype”.

 

Create a safe environment to challenge

What has been fundamental to Bailes’ leadership style has been finding a way of giving people the room to say what is going on. He commented: “Setting a tone that people need to be honest, celebrate the people that take on the problems; the people that ask difficult questions are the future.”

McDermott agreed that you need to hardwire ‘challenge’ into the top team. He commented: “Whilst it might not always be comfortable you need to start from a position of understanding and endeavour not to react emotionally.”

 

Shared vision as the moderator

So much of the success is about the CEO and the team and the vision that they build. Montague pointed out: “A united team can be built by a shared vision and goals. It takes time to build as there needs to be trust, but once you do it can be a more creative team and the quality of debate is better leading to less complacency and groupthink.”

Townsend added that applying a customer lens as a shared vision should be the ultimate guiding principle for CEOs and their teams. Likewise, McDermott shared how ‘values’ are extremely prominent at Catalyst which provides a natural framework for discourse and challenge.

 

Challenge first principles

Bailes talked about building in rigour to ensure long-held assumptions are challenged. He said: “Have a corporate plan discipline whereby you deep-dive into first principles every three years cycle. Challenge where you are starting from and what you think you know about something”.

 

See the board as an asset

A well-operating board should provide enough checks and balances to ensure that a long-serving CEO continues to add value. It’s more than that though, as Montague explained: “A board isn’t something to defend against. Every year having a new person joining the board brings fresh thinking. It’s easy; you need to listen, respect and adapt.”

 

Encourage sector talent mobility

Commenting on changing the mindset of departures, Synnuck said: “An outgoing CEO may have just the right combination of skills and experience to take forward another HA at a different stage in their cycle.”

 

The debate continues, but what is crucial is that CEOs remain self-aware and challenge themselves whether they continue to be the right person to take forward the organisation forward and maximise the opportunity. If they’re not doing that, we can only hope that boards are asking the difficult questions and holding CEOs to account.

 

Sarah Stevenson is a director and leads the housing practice within Interim Partners at NSCG.  If you would like to discuss how we can help you find, assess, deploy and transform the leadership team in your organisation, please get in touch.