Long-serving CEOs: How long is too long?

How long a chief executive officer (CEO) stays at the helm is not a big issue for listed companies, as long as the firm keeps performing well, market observers have said. But some risks can arise if this chief becomes too entrenched, which could make the board's decision-making and succession planning more difficult, they added.

Their observations followed a Business Times scan of CEO tenures at Singapore-listed companies with market capitalisations of at least S$1 billion, in light of CEOs' optimal length of service and its effect on company performance coming under increasing scrutiny against a business backdrop of rapid changes and technological disruption.

BT's study found that the median tenure of 91 CEOs - out of the 95 primary listings on the Singapore Exchange for which sufficient information was available - is about six years.

However, the average tenure length of the CEOs is almost nine years - 50 per cent higher than the median, as a result of there being several particularly long-serving chiefs.

The study, based on data from corporate-information platform Handshakes as at June 30 and from public sources available online, included managing directors who are effectively CEOs, but excluded acting CEOs such as at Singapore Post; there are also businesses like Wheelock Properties, which do not have official CEOs.

The longest-serving CEO in the sample is Hotel Properties Limited's founder Ong Beng Seng, 70, whose official title is managing director. The company was founded in 1980, which means he has been there 36 years.

Next is Wee Ee Chao, 61, at 35 years; he has been managing director of UOB Kay Hian since 1981 and executive chairman there since 1996, going by Bloomberg data. In third place is Ron Sim, 58, at 33 years with OSIM International, which he founded in 1983; OSIM was delisted last month.

The majority of the top 50 CEOs by tenure length are their respective company's founders or members of the group's controlling family, which observers say is to be expected, given the Singapore stock market's relatively short history.

But a fairly sizeable two-fifths of the sample are professional CEOs. In this group, Tan Pheng Hock (14 years) of ST Engineering has the longest tenure; Kua Hong Pak (13 years) of ComfortDelGro and Alan Chan (13 years) of Singapore Press Holdings are also among the longest stayers.

Mr Tan announced his retirement plans last September and is expected to retire by next month, say media reports.

Market watchers generally agree that that a long-tenured CEO is fine if the company is doing well, since such CEOs can offer experience and knowledge of the business.

Adrian Chan, head of corporate at Lee & Lee, said: "There is nothing really wrong with having a long-tenured CEO. The Code (of Corporate Governance) is silent on this and there could be fairly compelling arguments of continuity of service and preservation of historical knowledge, as long as the CEO continues to perform."

Mr Chan added: "I assume these (longer-serving CEOs) are high performers who have managed to sustain their level of performance and have not given their boards any reason to change them."

David Gerald, who has been president and CEO of the Securities Investors' Association of Singapore since 1999, said it was not surprising to see long-serving CEOs in family-controlled organisations. "For the CEO, experience counts and generally a longer-serving CEO may not be an issue ... CEOs are part of management and thus a longer-serving CEO may provide stability and experience. He is thus looked upon as being good for the company."

Corporate-governance specialist Mak Yuen Teen said he is "not so concerned" about longer CEO tenures "if the company is doing well and the industry is not going through major disruption".

One risk of having a long-serving CEO is that of entrenchment. which observers said could make organisational change and succession planning tough.

Didier Cossin, a professor at IMD Business School specialising in finance and governance, said optimal tenure limits vary by market, industry and other company-specific or individual factors, but "one safe answer is that as long as the tenure improves performance, we cannot say a ... CEO has reached the end of his/her life cycle". The same applies to board chairmen.

He said some researchers think the optimal CEO tenure length is 4.8 years, going by data for 356 companies in the United States between 2000 and 2010, but others "might come up with different numbers".

A paper from last year found an "inverted U-shaped" relationship between CEO tenure and the company's value, with the optimal tenure for the average firm coming in at about 12 years - beyond which costs start to outweigh benefits, he said.

Mr Chan said difficulties may arise if long-serving CEOs are also major shareholders, "as they are then entrenched and the board cannot easily remove them or even design a proper succession plan".

Mr Gerald added: "As a matter of prudence, it is better for boards not to allow the tenure of the CEO to be not stretched too long. CEOs must be relevant for the challenges of the time... Some shareholders put a premium on 'personalities' as they see stability, but sometimes it could be at the detriment of minority shareholders as they entrench the controlling family."

This article was first published on Sep 15, 2016.
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