2018

Issue 18

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BoardWorks International
Issue 18, 2018

Making a Successful Chief Executive Appointment

The contrasting situation of two different clients prompted me to reflect on the impact boards have on their organisations as a consequence of the chief executives they select. One board had a chief executive who was retiring after more than 30 years in the role. At his farewell function surviving directors talked about the qualities they saw in a young man unproven in any sort of management role that gave them confidence in taking a punt. They took advice from people who knew him well and they thought hard about the challenges facing the organisation and the leadership capabilities it would need. In marked contrast, the second board was forced to conclude it had appointed the wrong chief executive less than two years after it conducted an exhaustive international search process.

Increasing chief executive turnover

Internationally, research indicates that the average tenure of chief executives is reducing significantly. There are many factors contributing to this trend. For example:

  • The rate of change in organisations' operating environments requires dynamic and adaptive leadership. A chief executive who has served an organisation well in the past is not necessarily the person best suited to take the organisation through its next phase.
  • Stakeholder pressures on boards to account for organisational performance are easily translated into the premature replacement of chief executives. Chief executives are an obvious target when a board feels it needs to be seen to be taking such pressures seriously.
  • Despite good intentions many boards struggle with the best way to manage and motivate their chief executive. It is rare to find a chief executive who does not report some degree of dissatisfaction with their board.
  • Good chief executives are in high demand. They are susceptible to being attracted to roles that might offer greater job satisfaction.

Consequently, boards are likely to face replacing their chief executives more frequently than in the past. Even with a successful replacement the costs of having to find a new chief executive are high (organisational drift during the transition process, the direct costs of recruitment, etc.). The cost of a replacement decision that fails is incalculable.

The failure to select real leaders

I found myself wondering whether that second board could be in danger of repeating its mistake. I recalled advice I read many years ago which is just as valid today. In a Harvard Business Review article, leadership expert, the late Warren Bennis, and his collaborator James O'Toole, concluded that boards often go about the chief executive selection process the wrong way.(1) There was a tendency they said for boards to pick the wrong chief executives because they paid no heed to real leadership capability as the critical selection criterion.

Leadership was described as the combination of personal behaviours that enable an individual to enlist dedicated followers and create other leaders in the process.  Good leaders the authors said, demonstrate integrity, provide meaning, generate trust and communicate values.  In doing so, they energise their followers, encourage their people to meet challenging business goals, and all the while develop leadership skills in others.

Bennis and O'Toole concluded that 'real' leaders move the human heart. Therein lies a board's challenge; that quality is 'nebulous and squishy'. It is understandable that boards tend to look for candidates whose attributes are more tangible.

However, reliance on 'hard' evidence (e.g. previous profit centre performance) and apparent 'technical' capability, often results in a poor appointment. Bennis and O'Toole referred to the appointment (and subsequent failure) of an individual who had been a successful number two to a well-regarded chief executive. In his previous role he was also a highly effective CFO. However, people who had worked closely with him knew full well that he lacked the human touch, that his political skills were underdeveloped, and that he was a one-man band who seldom involved others in big decisions. Had the board bothered to ask, it would have quickly discovered that few among this man's colleagues considered him any sort of leader.

How can boards improve their chances of selecting a successful chief executive?

It is eighteen years since the publication of Bennis and O'Toole's analysis. In that time, the process of chief executive selection has become more sophisticated and more likely to attempt an assessment of the softer elements of leadership capability. Nevertheless, to improve a board's chances of hiring a successful chief executive there is still significant value in the guidelines they offered.

  1. Come to a shared definition of leadership - before it goes out to recruit a new chief executive, directors should develop a shared definition of what leadership means in the context of current organisational challenges. The board must do this before it engages the services of outside executive recruiters.

  2. Resolve strategic and political conflicts - as individuals, board members often have hidden agendas, differing world views, and disagreements about corporate purpose and strategy. A new chief executive should not be dropped into a situation where there is unresolved conflict around the board table and directors are pulling in different directions. Chief executives deserve clarity of purpose and consistency from their boards.  Bennis and O'Toole suggested that boards should engage in the same kind of teambuilding they would expect of their top management. Even if honest differences remain, a board must learn how to bring disagreements to the surface and deal with them in productive and non-disruptive ways. If there are board members whose personal agendas are at odds with the good of the organisation, a way must be found to replace them.

  3. Actively measure the soft qualities in chief executive candidates - Bennis and O'Toole suggested that most board members know how to measure financial results, market share and so forth, but are not comfortable assessing factors such as integrity, the ability to provide meaning, and talent for creating other leaders. They were optimistic then, however, and it is even more likely now, that there are techniques and approaches for measuring such qualities.

  4. Beware of candidates who act like chief executives - Bennis and O'Toole suggested that boards are often taken in by candidates who are little more than articulate, glamorous and charismatic dreamers.  You cannot tell a leader by what he or she looks like, or by what they say, in 'staged encounters'. They quoted Peter Drucker's view that the one sure way to spot a leader is by the presence of willing followers. They urged boards, to find out whether a candidate has a track record of creating followers and other leaders.

  5. Recognise that real leaders are threatening - Bennis and O'Toole suggested that many boards are unconsciously averse to outsiders who threaten to shake things up. Real leaders are threatening to those intent on preserving the status quo.  A leader who can motivate people to change is, by definition, a destabilising force. Be aware they, they said, that given the opportunity a sufficient amount of dirt, gossip, and speculation can be adduced to undercut any truly exciting candidate.

  6. Know that insider heirs usually aren't apparent - according to Bennis and O'Toole, no one should inherit a chief executive position.  Organisations should be meritocracies not monarchies. Boards should, therefore, give 'Crown Princes' the same vetting treatment as 'Commoners'.  On the basis of their analysis, particular scrutiny should be given to internal candidates if they are to follow highly successful predecessors.

  7. Don't rush to judgement - depending on circumstances boards can prefer a candidate who comes with a detailed plan to 'turn things around'. Bennis and O'Toole suggested that while attractive, such candidates are dangerous.  Effective leadership entails doing things through other people. What boards should be looking for are candidates who have a broad (and long-term) perspective, a set of convictions about the organisation's strategic direction, a clearly thought out managerial philosophy, and an understanding of how to galvanise the entire organisation towards change.

In my experience, boards under-estimate the amount of preparation they need to do in relation to their own performance before appointing a new chief executive. In over twenty years of consulting exclusively to boards, my colleagues and I have yet to see a situation where the forced resignation of a chief executive cannot be attributed, at least in part, to some shortcoming on the board's part. Not surprising, therefore, that Bennis and O'Toole concluded their article: 'Boards have no one to blame but themselves if their CEOs disappoint them.'

Note:

(1) Warren Bennis and James O'Toole: 'Don't Hire the Wrong CEO'. Harvard Business Review, May-June 2000, pp. 171-176

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