Recently, Nairobi Securities Exchange (NSE) petitioned the Capital Markets Authority (CMA) to amend regulations that impose term limits for its CEO and chairman so as to allow the bourse to extend the tenures of Geoffrey Odundo and Kiprono Kittony, beyond March next year.
NSE defended it citing ongoing restructuring of the exchange and the need for continuity as the reasons behind their request.
While scrapping term limits may not be a problem, the reason cited calls for a deeper reflection into the term limits of CEOs and chairpersons of corporate Kenya, in light of its possible merits and demerits.
If CMA goes ahead and extends the tenure only for the current CEO or scraps the term limit altogether, does that not call to question whether or not the term limit is best practice or even a factor of the captaincy of a firm?
The uncertainty of a change of guard is not something new. While it is true that executive onboarding is key to accelerating success and reducing risk in a new job, examples abound where even companies like Deloit, which is among the big four consultancy firms, did not reappoint its CEO, Cathy Engelbert, for a second term.
Given their expertise and experience, it will be shocking if they were not aware that people generally fail in new executive roles due to poor fit, poor delivery or poor adjustment to a change down the road.
Methinks Deloitte must have chosen consciously to manufacture a change down the road so as to force the organisation to adjust - a road even NSE could use instead of giving an excuse for restructuring.
So which way corporate Kenya? What has been the precedence? In corporate Kenya some CEOs and chairpersons have indefinite tenures, some have defined terms without limits while the majority have terms with limits.
In my opinion, putting term limits is a two-edged sword for all involved. For the most part, it guarantees a CEO a set amount of compensation over a set period of time or in a one-off if the organisation decides to terminate the contract early.
On the other hand, for risk management, there’s no guarantee that the organisation will renew the contract at the end of the period.
In that regard, whatever you chose to do in your organisation depends on your risk appetite. The organisation, on the other hand, has an opposite perspective.
On the one hand, they are committed to paying the CEO during the term of the contract, but can as well not renew it at the end of the period with no additional severance costs.
That is why, Deloitte seems to have an approach different from its partners who usually elect a CEO every four years for a term of four years, renewable for a further one term.
This forces a change at the top and ensures different leaders with different perspectives over time. And this is the main advantage of a term limit – ensuring fresh perspective.
Term limit also gives hope of growth among the wannabee CEOs, encouraging them to work hard in anticipation. As such, term limits seem to have a positive correlation not only with the CEO’s performance but that of the entire organisation as well.
The main disadvantage of term limits is in forcing a change which, in some circumstances, may be unproductively disruptive, especially when a change of leadership happens in the middle of a major transformation - the same argument fronted by NSE.
From my consultancy experience with over 1,000 companies whose Strategic Plans I have developed, I have come to realise that whereas terms with limits may be too cold and harsh, indefinite tenures, on the other hand, maybe too warm and ill-defined.
I would, therefore, confidently bet on defined terms without limits since they strike the balance between stability and accountability besides breaking the inertial expectation of continued service by the CEO. Stability is a good thing for all.
Those that disagree with a CEO’s policies can hide their heads and wait for the end of the CEO’s term. If there is no good reason to force the CEO out then people will have to get on board with the CEO’s policies or leave.
Change and dealing with the unknown, on the other hand, is stressful. Forcing a change where no change is warranted is the worst of all cases. Accountability is also a good thing for all.
Since CEOs make critical choices in running the business, a defined term propels the CEO and his/her board to agree on a set of deliverables during the course of that term. If the CEO delivers on expectations then he/she deserves another term; otherwise, he/she goes home.
The problem with indefinite tenures is that there’s no moment in time for the whole board to stop and consider the CEO’s progress.
Though warm and fuzzy, they don’t drive results as deliberately as they could. Terms with limits, on the other hand, create the same situation by taking away decisions from the board and giving lame-duck CEOs a bias to maximise short-term results.
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