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Been a CEO for 10 years? Your time's about up

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Over my four-decade business career, I observed many company leaders and what I saw was that eventually routine takes over. Chief executive officers become numb from dealing with repetitive issues and the challenge that initially energized them begins to fade. Many CEOs run out of steam, preferring to focus on acquisitions, outside directorships, charities and even honing their golf game. A tendency to retire seems to manifest itself as they approach 10 years in office.

A study of bank mergers and acquisition activities in 1998 confirmed my observations. It found that a majority of acquisitions fail to create value for the acquirer and the most voracious buyers are CEOs with more than 10 years of experience. Many seem to succumb to the exhilaration of hunting for new companies to buy rather than the mundane management of the existing and familiar. The author of the study recommended that, to suppress this dangerous ego/boredom factor, CEOs should be held to 10-year limits.

My friend Brian Duperreault, retired chairman of ACE Ltd., a global firm writing over $16 billion a year in insurance premiums, was interviewed last year about his 10-year run as CEO. He said, "I really believe there is a certain time frame for everybody to run a company as a CEO. You should always step down when you're doing a good job. I didn't want to stay too long. It is good to change management. People get stale" (to read the entire interview, visit www.BusinessInsurance.com/QandA).

Second-term blues struck many recent U.S. presidents: Bill Clinton's actions late in his first term led to the Monica Lewinsky scandal and impeachment; Ronald Reagan's overly aggressive staff created the Iran-Contra fiasco; and Richard Nixon's team breaking into the Watergate Hotel drove him from office.

Regarding this phenomenon, David Gergen, who served in the administration of all of the aforementioned presidents, was quoted in The Wall Street Journal as saying, "It is essentially an issue of hubris that sets in when you're re-elected. People around you think you're master of the universe."

Throughout my own state of Ohio, the name Taft has been synonymous with honesty and integrity for three generations. Following a successful first term as governor, Robert A. Taft II handily won re-election in November 2002. His great-grandfather, William Howard Taft, was U.S. president and chief U.S. Supreme Court justice, and his grandfather and father both were distinguished senators.

Robert Taft's second term as governor was stained by scandal and he was found guilty of ethics violations. The state Supreme Court reprimanded him, a permanent mark on his record as a lawyer. In the wake of these ethics abuses, Gov. Taft's approval rating bottomed at 6.5%, giving him quite possibly the lowest polled approval rating ever by a U.S. politician.

In 2006, Korn/Ferry International, a leading recruiter of executives, reported a survey of 1,925 CEOs. This survey asked: "At what point are executives most effective?" Fifty-four percent reported three to five years; 37% said in the first two years; 8% said five to 10 years; and only 2% said more than 10 years.

Leader disengagement late in their careers was evident in the courtroom revelations of Enron's Ken Lay, WorldCom's Bernie Ebbers and HealthSouth's Richard Scrushy. All claimed to be unaware of the financial shenanigans that surrounded them. However, the "out to lunch" defense seemed to work only for Mr. Scrushy as he was found not guilty on all charges of accounting fraud in 2005.

Your time may be up if you became CEO in 1997, and you should have already alerted the board of your intention to step down. A search for your replacement should be under way. But take heart, there is probably an even more exciting and rewarding challenge in your future, so get on with it.

Thomas W. Harvey is a former chief executive officer of Columbus, Ohio-based international brokerage network Assurex Global.