Bill Ford was booted after five years heading up Ford Motor Corporation (NYSE:F). Bristol Myers Squibb Co. (NYSE:BMY)ousted CEO Peter Dolan only a few days later; his tenure was also five years. Around the same time, it was announced that PepsiCo, Inc. (NYSE:PEP) CEO Steven Reinemund was stepping down to be replaced by up-and-comer Indra Nooyi. His time in the boardroom? Also five years. Jack Stahl was ousted as Revlon, Inc. (NYSE:REV) CEO after ... four-and-a-half years last Monday.
I think I see a pattern. If you're not cutting the cheese (and how) after the end of the fourth annual report under your tutelage, well then, it stands to reason you'll be shown the door. Or, ahem, suddenly find yourself needing to "spend more time with your family."
Michael Dell follows that pattern. Recently, he was faced with criticisms for his successor as CEO of Dell Inc. (NASDAQ:DELL), Kevin Rollins. Rollins' time at the helm? A bit more than two years. It's not enough, Dell said, and affirmed his support for his long-time right-hand man. Dell's troubles, he said, were not yet attributable to him.
Sumner Redstone, though, gave Viacom, Inc. (NYSE:VIA) CEO Tom Freston only eight months. In a move that affirmed Redstone's "eccentricity" (which in this context is a nice way of saying "impetuous" or "hot-tempered"), Mssr. Redstone blamed all his company's troubles on a man who'd only been CEO for less than a year ... hardly enough, you'd think, to evaluate his performance (or for his leadership to have any real impact on the company's stock price).
Is five years enough? Too much? Too little?
One year is most certainly too little; management changes made in January might not show through to the bottom line until the end of the year. Add in the reporting delays -- at least three or four weeks after the quarter's end -- and we have a case for two years before evaluation.
But change takes time. A CEO might, for instance, restructure divisions and hire new talent. A CEO might cut costs, or spend more on research and development, or employee health benefits. The changes could take 18 months to enact, the effects might take another year. After three years, you should see some effect of the CEO's actions on the company's stock price.
By this analysis, five years seems almost too long to give a poorly-performing CEO. Is the five-year trend we've seen these past few weeks a function of the real length of a trial period? Or is it something far less obvious -- a lockup period, enough time for board members to turn over, the end of the vesting period for stock options?
Are CEOs given too much time? Excluding the tempestuous actions of certain eccentrics, I'd argue, they are.
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