My Five Year Rule for Directors and CEO’s

The other day I was presenting to a roomful of veteran Directors when the youngest Director in the room asked: “Jim, what are your thoughts on how long a Director should remain on the Board of an organization?”

I smiled and jokingly asked him if he really wanted me to answer his question given that some of the Directors in the room had been on the same Board in excess of ten years. He smiled back and said “yes”.

So I told him.

“I don’t believe in anyone staying in any position for longer than five years. That goes for Directors, CEO’s…and even employees.”

The room got very noisy. I told them:

“The argument for staying longer is that experience leads to greater competency. I buy that.

However, what I’ve seen over and over is that staying longer stifles objectivity, passion and creativity. There comes a point where the increase in competency doesn’t offset the need to stay objective and current.”

Here’s my view on what happens over five years at any role:

First six months: mind open, mouth shut, steep learning

Second six months: steep learning, critical thinking, creative output

Next 12 months (year 2): creative output, increasing performance, increasing experience

Next 12 months (year 3): valuable experience, high performance, peak creativity

Next 12 months (year 4): valuable experience, high comfort, high performance

Next 12 months (year 5): aging experience, peak performance, declining comfort

Do I really expect a Board to dump a high performing CEO just because they’ve reached the five-year mark? No I don’t. But do I think the Board and the CEO should be having serious discussions about tenure, goals and succession. I do.

At Board level, many Board members are already subject to term limits and extensions. However, very few organizations limit a Director’s tenure to five years. In fact, over 50% of Canadian public companies have fifteen year limits1. Obviously, I have a problem with that.
Directors are not independent at that point. Whatever value they’re expected to provide, it better be based on institutional memory, not objectivity and currency. Compare that to the average tenure for employees – just 30 per cent ever stay in a job longer than 4 years2.

So, back to the other day. There were two positive outcomes.

First, lobbing my five-year theory onto the Boardroom table fired up a lively discussion on the pros and cons of Board limits. No decisions were reached but I can tell the subject is now real.

Then as I was packing up my equipment and heading out after the meeting a gentlemen stopped me who had been very quiet throughout the discussion. Here’s what he told me: “Jim, I heard you. It’s time for me step down from this Board”.

Good for him. I know it wasn’t an easy decision but he’s making a good call.