The New York Yankees decided to part ways with manger Joe Girardi yesterday (Oct. 27) despite his 10 winning seasons, a championship in 2009, and his taking a team laden with young, unproven players to within one game of the World Series last week.
Without any real explanation from the team, the decision doesn’t appear to make a lot of sense. Why kick out a proven commodity, particularly without an obviously better successor in the wings?
But there are a number of reasons why leaders in any organization should have limited tenures, even if they’re successful, and it’s why some organizations promote turnover. Many powerful leadership positions are limited to two terms, whether by law (the US presidency, for example) or by practice (United Nations secretary-general). Some positions are capped at a single term, like the seven-year stints of the vice-chancellors at the University of Oxford.
After a successful decade with the team, Girardi didn’t necessarily deserve to lose his job, but the Yankees may be healthier for replacing him.
When organizations bring in a new CEO, president, or manager, they’re typically eager for the new ideas and fresh perspectives that a change in leadership can bring. But as time goes on, even those new ideas become stale, and human nature means those leaders cling to the proven concepts that first made them successful, rather than adopt new ones. In one study of where the best ideas come from, front-line employees at Cirque Du Soleil were significantly better at generating winning ideas than their bosses, who were biased toward what worked when they were junior employees.
Another study (paywall) of 365 US companies showed that returns diminish over time when CEOs cling to power for too long. A tenure of just 4.8 years was optimal, according to the study’s authors.
When leaders know they have a fixed term, they won’t make decisions designed to extend their employment. A CEO who runs a company to produce marginal increases in profit each year may enjoy a long tenure, but he or she may neglect the painful but necessary work of restructuring.
For the 20 years Jack Welch ran General Electric, the company produced enormous earnings growth and he basked in his reputation as a visionary CEO. But much of that success was built on the back of GE Capital, its banking arm, which produced 50% of corporate profits. Over-reliance on finance distorted the company and siphoned investment away from its industrial strengths, leaving it exposed during the 2008 financial crisis and creating a mess that Jeff Immelt, Welch’s successor, attempted—and failed—to fully clean up. If Welch had run GE knowing he would step down after seven or 10 years, it’s possible he would have taken corrective action himself, rather than use GE Capital to bolster his reputation as a business guru.
The longer leaders stay in power, the more entrenched they become. They surround themselves with advisors who support their decisions, promote loyalists who protect the boss, and stock the board with allies. CEOs who hold onto power too long are often overpaid, and can blur the lines between their organizations and themselves. It’s not just imperial CEOs who can burrow into organizations and become permanent fixtures, but heads of departments, and leaders of museums, universities, or virtually any institution.
It’s no coincidence that many of the men now accused of sexual harassment—like Roger Ailes, Harvey Weinstein, and New Republic editor Leon Wieseltier—held leadership positions for decades, where they amassed power and influence and made themselves indispensable to their organizations. Not all long-tenured executives behave badly, of course, and term limits won’t prevent all misbehavior at the top. But stopping too much power from accumulating with any individual is one way to halt its abuse.