A struggling bank with a poor asset base recruits a top performing sales head of a rival bank. It captures a huge market share over the next few years, turns out that NPAs have become significant and now the asset quality is in question. A large IT Services firm wants a makeover into a blue blood technology company and hire a Technocrat as a CEO, turns out the organization is able to attract some very good technology talent and few marquee clients. But, eventually, governance and stakeholder management take a beating. An ambitious domestic airline, wants to go big, needs to negotiate complex and large multiple deals to buy aircraft with favorable terms. They go for a General Counsel as their CEO. Many years later when their plans evolve to become an international airline they think the incumbent CEO is not scalable to the new task.
Sounds familiar? Yes, this has happened before and would happen again.
The Power of Context
We have grown up to know unlike born leaders there aren’t born CEOs. All have to climb the ladder to get to the corner room. Ever thought what was the previous role of any CEO before s/he became one? Let’s list down the precursor roles; CFO, Head of Marketing, General Counsel, COO and some of the rarest would have been CHROs. What’s your guess on how they cleared the last hurdle besides the luck/ favoritism factor? For that, we may need to dive deeper into how boards choose their CEOs!
First of all, the boards consider the context of the organization. The organization’s need to start up, turnaround, sustain success, build process plus controls, innovate for new products, expand globally, acquire will decide the kind of person who becomes the next CEO. It goes without saying that most employers go for an external hire when they don’t find the competencies internally for their context.
Claim to Fame
Context cannot be ignored by boards to meet shareholder’s immediate needs. So, when they make their choice there is always an element of risk about the long-term future. In spite, of this, the boards look into what the CXOs bring to the table immediately, based on their past roles. Every professional has a primary functional expertise which is what they have done for the longest time. Maybe, that’s also something they have developed an expertise in. Though many of them would have developed strong leadership skills, their functional expertise distinguishes them from the rest. This specialist knowhow becomes the bone of contention when the board makes that call.
After all, the CEO isn’t just a manager of multiple departments, there are functions where he is supposed to lead as well. It is very difficult for all the new CEOs to seamlessly adapt to multiple roles. There are certain departments where they will be more natural or specialized and a dumb in few; this most often decides their fate.
The Hangover Effect
In many cases, the new CEOs end up consuming too much time in their area of strengths or let’s say their past roles. The ex-sales CEO spending more time on sales, the Finance background CEO being too nosy with his finance team or the marketing oriented CEO holding each campaign for his approvals are common stories we have heard before. It’s either their need to contribute to their functional expertise or an inability to change to new areas is a matter of debate. It’s more likely that the new CEOs who adapt to the remaining functions faster are likely to be more successful and also liked by their stakeholders.
I once had a CEO who was an ex-CFO. Our conversations always revolved around controls and risks. So, when the entire competition gained from the buoyant market, we were busy focusing on process, excel sheets, PowerPoints, and reviews. Nobody went to the market as the CEO had hijacked all of us with internal meetings. We became the most compliant company when our competitors moved up as market leaders.
The Polymath CEO
The dilemma for most boards is that they want a dominant functional expertise for a CEO elect to meet the context and at the same time a polymath who survives the diversity of the role. This quintessential CEO is not uncommon but a difficult to find. In many cases, the board does not provide the space and time for the specialists to adapt. The context and the claim to fame based hiring rob you of the opportunity to look for a multifaceted CEO. Sometimes, being a polymath is also a choice. It depends on the intent and the mental make-up of the CEO. Hence, many boards opt for psychometric assessments to get a peek into the personality of their future hire.
Once when we were grooming CEOs internally we thought we found most leadership qualities in our Finance Head. But, every time she was given a business opportunity, she ended up spending more time on the finance part of the role than the other aspects. So, it wasn’t competency but her natural behavior and intent. She lost the CEO role to the operations head though he possibly ticked lesser boxes than her.
Fixed Term CEO
Every organization needs specialists in almost all roles except for the one at the top. We are aware of the switch this role holder needs to demonstrate continuously. For many, this is difficult as it’s almost like changing their DNA and the functional identity they lived with for more than 2 decades.
I always wondered if a 5-year term for every CEO should just be the apt solution. This would enable the organizations to address their current context and get new CEOs for the next challenge. I know that’s a difficult one to execute, but at the rate in which companies are disappearing from the Fortune 500 list, it could well be one of the survival tools.