Section Fiveexperience and knowledge of CEOs becomes less important
than portfolio management skills. (Portfolio management skills
refer to the ability to manage diverse businesses on the basis of
general principles instead of in-depth knowledge of the specific
business.)^77
Conversely, with less diversified firms, knowledge of the
core business is much more valuable. Such knowledge of less
diversified firms typically develops with increasing
organizational tenure. It has been argued that as executives
acquire longer tenure within their firms, however, they apply
fewer innovative or novel ideas to new situations. Accordingly,
there appears to be a downside to the value of firm-specific
knowledge as an inverse relationship has been found between
firm performance and CEO tenure in nondiversified firms.^78
These conflicting observations have led to a recent
attempt to find answers to three related questions:
- When firms differ in the extent to which their strategies
emphasize diversification, are there differences in the
tenure of the CEOs they select? - Does the tenure of an executive who is selected as CEO
have an impact on the subsequent performance of the
firm?