IS the tenure of a chief executive officer (CEO) important to the growth of a business?
This question is becoming increasingly important due to the growing challenges facing the country’s corporate sector, particularly as more and more firms face the prospect of collapse due to a worsening economic environment.
CEOs in progressive economies seldom keep their jobs at the helm of a single company for longer than two, five-year terms, but occasionally a select few manage to stick in the same place for over a decade.
While many CEOs in Zimbabwe deserve to continue being at the helm of their companies because of their organisations’ performances, others should have graciously resigned a long time ago to protect their reputations.
Their companies’ financial results have shown an uninterrupted decline that they have failed to reverse.
Current financial results for companies that recently replaced their CEOs would tempt one to postulate that the previous CEOs were the problem, rather than the economic environment.
Turnall Holdings is one such example.
The company appointed Caleb Musodza as managing director in September 2014, taking over from John Jere.
Under the new management, the company managed to grow volumes without making any price markdowns, something that most companies in Zimbabwe are failing to achieve.
The fundamentals have improved significantly with much better cash generation as a result of near-cash sales.
Some company results show that some CEOs are perennial underperformers despite being at the helm for many years.
Some of these CEOs lead State-owned enterprises.
A study undertaken by global management and strategy consulting firm, Booz & Co, in 2011 showed that the global trend was that holding company CEOs had the longest average tenure of 6,3 years, followed by CEOs of strategic companies that had an average of 5,5 years and CEOs of operationally involved companies with 3,3 years.
So, essentially, many CEOs in Zimbabwe are bucking the trend.
Zimbabwe has some of the longest serving CEOs.
History has shown that it is difficult to implement new ideas or programmes with CEOs that have been at a company for a long time.
Shareholders need to take drastic action to save their investment in view of poor performance of entities in which they are shareholders.
Zimbabwe has had a number of CEOs blaming the environment and lack of resources for underperforming, but these managers forget that part of being at the helm includes looking for resources for the organisation to function effectively.
International consultant in financial reporting and public financial management covering the Africa, Caribbean and South Asia regions, Sonny Mabheju, told the Financial Gazette this week that CEOs should be given performance related contracts with a specified tenure, even if the company was performing.
He said shareholders should not wait until they started losing value to replace CEOs.
“Harvard Business Review (2013) found out that long CEO tenures can hurt performance particularly with regards to customer relationships, need to gather market information first hand and sustain strong strategy. CEOs that have stayed long tend to focus on motivating employees at the expense of developing and implementing a robust strategy,” Mabheju noted.
He said changing CEOs makes sense in this rapidly changing global market.
“CEOs tend to be less value-adding to entities the longer they stay with the same organisation and can even end up being liabilities in terms of the need to be innovative in a changing environment,” he added.
Mabheju said a successful CEO should be able to make smart decisions in times of economic stress and produce results that increase shareholder value and enhance stakeholder responsibility.
These characteristics are learned through experience and not necessarily through tenure with one company.
Research by Harvard Business Review suggests that as CEOs accumulate knowledge and become entrenched, they rely more on their internal networks for information, growing less attuned to market conditions.
And, because they have invested more in the firm, they favour avoiding losses over pursuing gains.
Their attachment to the status quo makes them less responsive to vacillating consumer preferences.
“These findings have several implications for organisations. 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,” the study said.
Julius Chikomwe, a corporate lawyer with Thompson Stevenson & Associates, told the Financial Gazette that the question of whether a CEO was at the group, strategic or operational level was important in determining tenure.
He said in addition, other issues such as the level of ownership and the extent of shareholder activism in the market in which the company operates also played a part on the tenure of CEOs.
“Zimbabwe’s CEOs tenure statistics reveal that Zimbabwe’s average CEO tenure, at about 10 years, is twice the sample from Booz & Co,” Chikomwe said.
Human resources expert, Memory Nguwi, said some companies were failing to adopt a culture that promotes increased productivity and better performance.
He observed that when most CEOs and executives were pushed out, boards and shareholders never explained the true reasons these executives would have left.
“When CEOs and other senior executives resign the official reason often given in this country is that they have left the organisation to pursue personal interests. What a lie! We rarely have executives resigning to pursue personal interests in this country,” he said.
He said by misleading shareholders into believing that sacked CEOs or senior managers had left to pursue personal interests, boards were missing an opportunity to change the culture of organisations.
“What are you teaching ordinary employees? That in our organisation people do not get fired for non-performance but they resign to pursue personal interests? Imagine the impact it would have if boards were telling the truth why CEOs and executives are leaving the organisation,” Nguwi said.
This could change employees’ attitude if they appreciated that poor performance was not tolerated at their organisations.
Some CEOs who have led their institutions for more than a decade in Zimbabwe include Albert Nduna, the ZIMRE Holdings Limited CEO for 31 years since 1984; Anthony Mandiwanza, the Dairibord CEO for 19 years since 1996; Hilton Macklin, who has led Powerspeed for 17 years since 1998; and Sydney Mutsambiwa a top dog at Hippo Valley for 17 years since 1998.
Douglas Munatsi led BancABC since its creation for 14 years until he left last year, while Themba Ndebele has been CEO of Truworths since 2000.
Gary Sharp has led Padenga for 15 years from 2000, as has Francis Rodrigues who has been with Phoenix since 2000 until the company was placed under judicial management in 2013.
Tawanda Nyambirai, the creator of TN Holdings which delisted from the local bourse in 2013, is still the visionary of the group.
Douglas Mboweni has led Econet Wireless Zimbabwe for 13 years since 2002.
Other notable names include Linda Matterson (Edgars) (13 years since 2002) Grace Muradzikwa (NicozDiamond) (13 years since 2002) and Simon Chapereka (Fidelity Life) (12 years since 2003).
Economist Brains Muchemwa said: “Vibrant shareholder activism is virtually non-existent in Zimbabwe and as such the tenures of service by CEOs and boards are usually not linked to excellence and good leadership, but patronage,” said Muchemwa.
“But with the dollarisation and the resultant scarcity of capital, shareholders will be demanding more from CEOs and boards going forward and the era of long serving CEOs may be gone,” he said.
The core responsibility of a CEO is to facilitate the operation of a company, give advice to the board, implement plans and interface between the staff and board. Hence it is not easy for a CEO to keep his job for long.
However, CEOs are able to stay at the top for decades and become a vital part of companies, history and growth.