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Here's why the Institute of Directors in Southern Africa recommends you develop a formal policy regarding your CEO's tenure

by , 26 June 2014
Quick question: Do you have a formal policy that outlines issues about your CEO's tenure? If not, pay close attention.

You see, the Institute of Directors in Southern Africa (IoDSA) recommends you develop this policy immediately.

Here are its reasons...

The reasons you should develop a formal policy regarding your CEO's tenure are as follows

According to IoDSA, the fact that many CEOs are staying in the job for too long is reason enough to develop a formal policy regarding their tenure.

The institute says when CEOs stay for too long, which is usually the case in family businesses, and businesses where a charismatic founder is the CEO, this puts the company and the CEO's legacy at risk.

The CEO of IoDSA, Ansie Ramalho says in a statement: 'Boards would probably be well advised to develop a formal policy relating to CEO tenure and what indicators should be used to determine when it should be terminated to protect the company and the CEO's own legacy. In this regard, leaders should actually be grateful for a way of determining more objectively when it's time to move on—many a career has been blighted by staying on too long in one place.'

Ramalho's comments come after a recent study published in the Strategic Management Journal, which links the length of a CEO's tenure with the performance of the companies they run.

Here's what the researchers found.

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The call for boards to develop a formal policy regarding a CEO's tenure comes after a study found the following

Researchers from Temple University and the University of Missouri examined 365 US companies between 2000 and 2010. The primary focus was to examine how the length of CEO tenure affected both firm-employee and firm-customer relationships.

The researchers concluded that while long tenures by CEOs can help to build solid relationships between the company and its employees, there's also a negative connection between a CEO's tenure and relations between the company and its customers.

They say this is due to the fact that new CEOs tend to be externally focused with a high level of interest in customer feedback and market intelligence. But as time goes on, 'they tend to turn inwards, relying more and more on internal sources of information and tried-and-trusted paradigms.'

The research found that the optimal term for CEOs in respect of firm-customer relations is 4.8 years.

This study suggests complacency is bad for business. And the IoDSA believes developing a formal policy regarding your CEO's tenure will help you overcome this complacency so your business can continue to thrive.

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