Experience is one of the most important resources in the business world: it helps entrepreneurs found better companies, mentors to give better advice and investors to make better investments. But does it help CEOs to grow their companies faster? It depends on the growth rate of the company, according to Nguyen et al., who analyzed the performance of 508 Australian firms over a 10 year period to better understand the impact of CEO tenure, CEO age, firm size, firm age, financial leverage, growth opportunities, board size, duality and board independence on growth rates.
Four of these factors were, surprisingly, linked to declining sales: CEO age, firm age, board size, and board independence.
Nguyen et al. explain this with the influence of age and size on decision making: older organizations tend to be less innovative, while the dynamics of group decision-making turn bigger boards conservative. The effect of the other factors like CEO tenure, financial leverage, or firm size was conditional on the growth rate of the firms. For example, low-growth firms benefited from increased size as it allowed them to buy out their competitors and boost their sales. High-growth firms, however, were hindered by an increase in size due to the management challenges it presented. The length of CEO tenures had similarly conditional effect. On the one hand, low-growth firms benefited from long serving CEOs as their extra experience allowed efficiency to be maximized.
On the other hand, the sales of high-growth firms were hindered by long-serving CEOs.
Extra experience often led to ingrained habits and inability to adapt to the rapidly changing needs of the company which could not be compensated with increased efficiency.
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Contributed by Bence Juhasz.