Private players hold the fort on CEO tenure
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Opinion: A look at the length of CEO tenure across the sphere of corporate activity points to some interesting parallels, and other key differences.
I recently returned to some research I did two years ago into CEO tenure in a number of Western Australia’s major corporate and government sectors.
Perhaps not surprisingly, the major private companies in this state had the longest running CEOs on average, hitting almost 15 years (because many were the founders). In a young state, in business terms, a few recent decades of high growth had catapulted single-generation businesses to the top of the tree.
Two years later, BNiQ data shows the average incumbency has shifted to 16 years, suggesting that longevity remains a key factor in that part of our corporate world.
However, things have changed rapidly in some other key business sectors.
In 2016, perhaps unexpectedly, the CEOs of the WA’s top 20 industrial public companies had the next best tenure, just shy of 10 years. In ASX terms that makes them almost part of the furniture. And they pipped the leaders of our biggest not-for-profit businesses by just a couple of months.
My updated version of this exercise, with several departures since then, shows there definitely seems to be a changing of the guard across a number of key WA sectors, which has significantly brought down the averages.
Average tenure in some key sectors has dropped by 40 per cent or more, from close to 10 years to between five and six years. While half a decade’s experience at the top is enormous, that is the average and it hides the amount of new people that have joined these ranks in recent years.
Among the industrial companies we have seen the departure of the likes of Ron Sayers, who ran Ausdrill for pretty much 31 years, and Richard Goyder, who was 12 years at the helm of Wesfarmers. That takes a toll on the averages.
In more recent times, Navitas boss Rod Jones has relinquished control of the business he founded in 1994, and RCR Tomlinson’s Paul Dalgleish departed suddenly after nine years.
In the not-for-profit business sector, Michael Stanford left St John of God Health Care after 16 years, Andy Crane has left CBH Group after nine years to be replaced by Jimmy Wilson, Michelle Fyfe is soon to take over from Tony Ahern at St John Ambulance after 12 years, Chris McGowan has left Silver Chain after 11 years, and John Van Der Wielen has settled into the top job at HBF after replacing Rob Bransby, who was at the helm for 12 years.
With all that change, the average has dropped to about six years.
On top of that, RAC chief Terry Agnew is driving off into the sunset after 20 years in the top job. That alone would put CEO tenure at the top 20 NFP businesses at just over five years when the change takes place.
That is a big amount of turnover. Six of the top eight NFP businesses have had or will have a new CEO in under two years. Of course their replacements are not in any way newbies, instead bringing a wealth of knowledge from their own careers. In addition, good board structures will be supportive.
There may even be an argument that that being too long in the job can detrimental to a business. Nevertheless, change comes with risks, which is why so many private company founders and owners struggle to hand over the reins.
In the government sector, the reduced longevity does not seem pronounced, but the reduction is coming off a lower base. Then again, it is the wont of governments to make their own appointments so turnover is to be expected and, therefore, less longevity near the start of the new government.
As previously stated, bucking the trend were the leaders of private companies who have, in the main, simply become older in the job. The heads of charitable groups have also managed to show more durability than most of their peers.
Also interesting was the fact that the CEOs of listed WA resources companies have been around longer than they were in 2016.
I don’t have a lot more to say about this other than to observe that, while experience counts in some fields, it is not always valued, especially in the more public spheres of the ASX and government.
There is also a cyclical nature to this. While the change in government departments is likely to subtly reflect the election cycle, the big changes in industrial listed companies and the not-for-profit businesses may indicate something else.
Perhaps it is also suggests how close these two sectors are, even if we rarely see a crossover in management.