As boards and shareholders evaluate CEO performance this season, they should weigh the evidence of the value of long-term thinking: Companies that boast the longest serving CEOs also trend to attract best shareholders – those with the longest hold time and highest concentration level. It’s another advantage for companies and managers who attract such “quality shareholders” (or QS), there with restraint activities, counterattack authorized advisory rights, and offset short-term pressure.
In recent years, the average CEO tenure of the major US public companies has rise from seven to nine years (the average varies from year to year and by statistical method). Research by search firm Spencer Stuart conclude that many CEOs create the greatest value in the “golden” years of 11 to 15, when knowledge and experience can be optimal. Some experts argue that 10 years might be ideal for most people: long enough to contribute a lot, but short enough to avoid complacency.
The CEO in current position is Warren Buffett of Berkshire Hathaway
We identified CEOs with at least 10-year terms through early 2020 from companies in our 2,070 database ranked by quality shareholder density. Of the 100 companies that made the cuts, a quarter of the longtime CEOs ranked in the top quintile in terms of QSs acquisition, half in the highest quarter, and nearly all (85) ranked in the half. on. In other words, longtime CEOs are tied to high quality shareholders. Furthermore, as a group, such companies tend to perform better.
Topping the group are a handful of CEOs with decades of leadership and shareholder base ranking for the highest or fifth quarter for quality: Leonard S. Schleifer of Regeneron Pharmaceuticals Inc.
(since 1988); Daniel Paul Amos of Aflac
(since 1990); and John Wren of the Omnicom Group
The longevity / quality correlation is especially strong for companies with a long history of CEO tenure – a longtime CEO followed by one or more others. Top example: EcoLab
has had seven CEOs in its 99-year history; Emerson Electric
has had three executives in the past 66 years; and Amphenol
that the current and previous CEO has served for 25 years (Richard Norwitt and Martin Loeffler). All three companies also boast high QS ratios for shareholders on the other end of the spectrum, according to data from EQX.
Some of the longest-serving CEOs of QS attractors have become household names, thanks to both their tenure and visibility. An example outside of Buffett is Jamie Dimon (Morgan Stanley
) and Larry Fink (BlackRock
). Others are heirs in dynasty businesses, such as Patrick Gallagher (Arthur J. Gallagher & Co.)
), David Simon (Simon Property Group
), and James Tisch (Loews Corp.
Several other longtime CEOs of companies with high QS have resigned over the past year, making those companies worth watching when a successor takes the helm. These include former recorders, Leslie Wexner, who retired as the CEO of L Brands Inc.
after 57 years leading the retail company he founded, and former runner-up, Alan Miller, who retired as CEO of Universal Health Services
which he has led since 1978.
What’s more, the list of newly retired CEOs is so long, the rate of role change is probably on the rise. Those companies include Amazon. com
(Jeff Bezos, about to be succeeded 27 years by Andy Jassey); Abbott Laboratory
(Miles White succeeds after 20 years of Robert Ford); Energy dominates
(Thomas F. Farrell II succeeds after 15 years of Robert Blue); Nike
(Mark Parker succeeds after 15 years of John Donahue); and Merck & Co.
(Ken Frazier is a success 10 years after Robert Davis).
Likewise, female CEOs with long terms also have a good track record in attracting QS. Two former CEOs with exceptionally strong operations were Phebe Novakovic of General Dynamics
(Age 8) and Lockheed Martin’s Marillyn Hewson
(7 years as executive chairman after 7 years as chief executive officer). Two people with a company have a harder time, but a conscious person QS is cultivated in their shareholder letter, is Indra Nooyi (PepsiCo
for 12 years) and Virginia Rometty (IBM
for 8 years).
CEOs come and go for a variety of reasons – from retiring or better job opportunities being discarded due to low-end performance or poor business models. But it’s hard to survive without lasting performance – and a supportive shareholder base. What seems to unite this high-density long-term team of QS is a shared appreciation for long-term value creation: The CEO has a long-term vision of success and the QSs are ready. let the company see it. Those who judge incumbent CEOs should think about the relationship between QS and the CEO’s life span. There could be a lot of value there.
Lawrence A. Cunningham is a professor at George Washington University, a longtime shareholder of Berkshire Hathaway, and a publisher, since 1997, of Essays by Warren Buffett: Lessons for American Business. To receive updates, including his exclusive webinar invitation during the 2021 Berkshire Hathaway Annual Meeting, register here.