The Key to Ending the CEO Succession Crisis

by Rob Andrews, Allen Austin Global Executive Search

The heads of the largest U.S. companies in virtually every business sector are under pressure to build enterprise value. Leaders are expected by boards, shareholders, employees, regulators and society to resolve challenges. CEOs who cannot perform are shown the door, and the search is on. Unfortunately, many ousted CEOs were predestined to fail. Most are bright, talented, well-educated and hardworking, but many are ill-equipped to perform in their roles.

The Problem

Recent studies show that 40 to 50 percent of newly hired CEOs are fired or resign within two years. This trend is a crisis. Every time a CEO placement fails, the consequences are dramatic. Loss of financial performance is often most obvious, but as significant is the loss of momentum within the organization.

Our assessment of more than 3,400 failed CEO and C-level executive placements during the past 16 years reveals that most could have been avoided.

Because we usually rely on simple job descriptions and resumes, we typically do not define all critical success factors in advance or specific performance objectives. And because we do not look into the future, the selection process becomes a beauty pageant and chemistry contest. A new CEO is hired because it feels right; he or she looks good, sounds good, smells good and is oh so charming. Then, in three to six months, we get that queasy feeling in our gut that suggests we might have made a mistake and things are not working out. About half the time, within a year we know we have made a mistake.

Bad matches occur because a CEO was assessed against a job description that was simply a list of attributes instead of being assessed against an organization’s condition, needs and culture. In many cases, CEOs do not understand the operations, their customers and strategic priorities and lack the vision or emotional intelligence to view the operations as they could be at maximum performance. There might be nothing wrong with a person or an organization; the problem is that the hiring process produced a bad fit.

The Analysis

How does an organization secure a good CEO fit? Start by conducting a thorough needs analysis designed to define exactly what it will take for a CEO candidate to be successful in that role. Elements should include definition of:

  • The company’s strategic growth and performance objectives;
  • The company’s primary drivers and customers;
  • The company’s valued behaviors and attitudes;
  • The non-negotiable personal attributes of the candidate;
  • The most important, specific deliverables for the position;
  • The way the position’s focus should evolve; and
  • The organizational landmines that could jeopardize success.

The hardest part of the needs analysis is establishing performance expectations for a CEO. Performance metrics should be specific and measurable, have a timetable, and may or may not be tied directly to financial results. They should reflect a company’s strengths, competitive environment, human and infrastructure resources and any other factors that impact potential for success. There must be a clear focus on what drives the business, what differentiates the company from its competitors and what defines the right balance among strengths, opportunities and weaknesses.

The Fit

The needs analysis should produce a document that clearly articulates who and what a business is looking for. The document should describe a candidate who wants to be part of what the company is doing, and who is ready, willing and able to take the organization where it needs to go. The search should identify a leader who shares the organization’s values and attitudes and has personal and professional aspirations aligned with the organization’s objectives. Without a compelling statement of and correlation to these key elements, an organization depends on compensation to lure an attractive CEO candidate. This will attract the very best of the displaced, underperforming and disgruntled.

CEOs fail when their values and those of organizations are not aligned. This is not about right or wrong, good or bad. Some organizations value innovation; some companies expect creativity and risk taking; others expect leaders to be solid, steady and unspectacular. Some companies are passionate about their intense work ethic and expect a 24/7 CEO; others value work-life balance throughout the organization. Unless they can articulate their values, embody them in a comprehensive needs analysis and select a CEO that matches values and needs, companies are setting CEOs up for failure.

Often CEO candidates whose credentials shine in abstracts are unable to integrate with the organizations they are chosen to lead. When fit is the driver of selection, integration is not a problem. Fit is a product of awareness, and successful integration is rarely an issue when a CEO is aware of and attuned to the values and needs of a company. If awareness, knowing and acting with purpose and focus are the result, then companies will have successful leaders.

Author

Rob Andrews is chairman and CEO of Allen Austin Global Executive Search and the author of “High Performance Human Capital.” With more than 40 years of industry, search and consulting experience, he has successfully placed hundreds of C-level executives across a range of industries. Reach him at randrews@allenaustinsearch.com.

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