In my most recent Company Director column (“How long should a CEO stay?, available here), I reported that economists’ research shows that, in general, CEOs should not stay in their roles for more than 8-12 years. This finding reflects the trade-off between the incremental benefits and incremental costs to shareholders of longer CEO tenures. Of course, there are exceptions. Economists sometimes do macabre things to prove their point, like studying share price reactions to unexpected CEO deaths. On average, share prices dive by 2.3% if a CEO’s tenure is less than 9.5 years, but rise by 1.4% if it exceeds 9.5 years! It may be macabre, but such research can produces evidence that is valuable in policy-making – in this case, in helping boards think about their CEO tenure policies.
Adelaide Economic Policy Forum