The length of tenure of newly appointed Australian CEO’s is far too short according to a leading recruitment specialist.
An April 2012 report by Goldman Sachs, CEO Turnover: Implications of Declining Tenure and Longevity Risk, revealed the length of time CEOs spend in the top job in Australia has declined by nine months in the past five years. The median ASX100 CEO tenure now sits at just 3.9 years – twice the international average.
The problem for HR is the sheer cost involved in replacing the top job, and the ripple-effect of disruption throughout the company. For executive search expert Simone Allan, it's time HR directors get tough with their preferred recruiters. “If newly selected CEO’s and senior management are not lasting beyond the first 3.9 years, it’s time to choose another recruiter,” Allan commented, adding that a successful CEO hire would be 5 years at a minimum, but 8-10 year tenures is the aim.
So what’s causing the 3.9 year itch? The answer may lie in the recurring issue of cultural fit. “Most high level hires that fail don’t fail for lack of ability. They fail because the new hire doesn’t fit in as an individual. The right CEO needs not only the right skills and experience to succeed but as important is that they need to have a cultural and emotional fit in to the new organisation,” Allan said.
Mondo Partners offered the following guide on how to best monitor recruitment outcomes to improve retention:
Make executive retention a strategic issue.
Measure and track retention in all leadership roles over 1 year, 2 years and 5 years. Quality metrics drive quality retention.
Start with quality recruitment. Insist on working with specialist recruiters that have a strong audited track record in retention. This will increase the calibre of pre-screened candidates and the culture fit with the organisation upfront.
Commission independent externally managed "stay interviews" at six monthly intervals for senior executives. These can be far more valuable and timely than traditional exit interviews, which provide limited results. Stay interviews help track the heartbeat of the company and allow the organisation to keep abreast of issues that could affect senior staff.
Make the costs of poor retention visible. Studies show it costs at least $250,000 to replace a senior executive when you add in lost productivity, the time to bring on a replacement and the time to get the new executive up to speed. Some suggest the cost of replacing a CEO could be up to 40 times their base salary.