Analysis: What’s the average CEO tenure in Africa?

What’s the average CEO tenure in Africa?

Africa Advisory Group analyzed 50 companies across the continent and looked at the CEOs in place since 2005 to provide a snapshot of CEO tenure in Africa. The average CEO tenure for 67 CEOs based at the 50 companies analyzed is 7.01 years. The data includes nine CEOs who served between one and two years. The longest serving CEO in the group is 36 years.

The CEO tenure analysis includes 20 companies from Nigeria, 10 from Kenya, 10 from South Africa and 10 from North Africa. The companies were selected from Africa Business Magazine’s Top 250 Companies in Africa list, which ranks businesses by market capitalization as of 2014. The 50 companies represent the banking, financial services, telecommunications, FMCG and energy sectors.

To assess the average tenure of the CEOs, AAG used the CEO-tenure length for all CEOs that were in place by 2005, excluding the current company head in most cases. The current company head was excluded because the term is ongoing and in many cases the CEO has been in place for less than one year. For seven of the companies, the same CEO has been in position since or before 2005 and those CEOs were included.

How does Africa compare to global trends?

Research by non-profit firm The Conference Board found that the average CEO tenure of retiring CEOs in 2014 at S&P 500 companies was 9.7 years, the highest rate since 2002. The report authors found that in 2000, average CEO tenure was about 10 years, but by 2012 it had dropped to 8.1 years. The shortest tenure during their research period was 7.2 years in 2009.

Screen Shot 2015-07-15 at 5.24.20 PMAn Executive Mobility Survey conducted in 2013 by BlueSteps of 900 executives worldwide found that 43.7% of global executives at director-level and above expect to remain at their current organization from two to five years while only 16.3% of executives plan to stay at their current organization for less than two years. BlueSteps is the executive career management service for the Association of Executive Search Consultants, a professional body representing the executive search industry.

Is there a right CEO tenure?

A study from Temple University’s Fox School of Business carried out an analysis of 356 U.S. companies from 2000 to 2010 to determine what the right CEO term limit should be to maximize a CEO’s effectiveness. Xueming Luo, a professor of marketing at the school, and his colleagues measured CEO tenure and calculated the strength of the firm-employee relationship each year. They concluded the ideal CEO tenure is 4.8 years.

In an article they published in Harvard Business Review, Luo and his colleagues describe a CEO’s seasons of leadership. They describe their findings, which included the longer CEOs are at the helm of a company the more risk-averse they become, as well as being less connected to customer needs and market changes. The CEO tenure and the relationship with customers has several implications.

Boards should be watchful for changes in the firm-customer relationship. They should be aware that long-tenured CEOs may be skilled at employee relations but less adept at responding to the marketplace; these leaders may be great motivators but weak strategists, unifying workers around a failing course of action, for example. Finally, boards should structure incentive plans to draw heavily on consumer and market metrics in the late stages of their top executives’ terms. This will motivate CEOs to maintain strong customer.Xueming Luo, et al., Harvard Business Review

What does this mean for boards?

Defining the “right” tenure for a CEO requires the company to consider the implications from the perspective of the CEO as well as the perspective of the board. For boards seeking to retain high-performing CEOs, understanding the reasons why CEOs typically resign can help inform strategies to keep strong CEOs engaged. When dealing with under-performing CEOs, boards should consider the trade-off between investing in supporting the incumbent CEO to improve his or her performance compared to proactively identifying or grooming a successor.

For more perspective on managing CEO tenure, visit our Optimizing CEO Tenure series from a board perspective and the CEO perspective.

AAG CEO Tenure

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