What’s the best way to identify your next CEO?
Many boards of directors fail to choose the right CEO. However, that is one of their most important and visible strategic assignments. For example, did you know that 40 to 60% of CEO appointments fail after just 18 months? And that this is not so much due to the CEO as to the Board?
This inconvenient truth was a key focus for discussion at our annual Directors’ Day on 29 November, which took place at the BNP Paribas Fortis Conference Centre.
Choosing the right CEO is no easy task
One might naturally expect productivity and other performance indicators to improve following the appointment of a new CEO. But the reverse can also be true. Often, the board of directors has to admit defeat after a short while and fire the new CEO whose arrival was announced with so much fanfare. In addition to the substantial waste of time involved, this of course also comes at an enormous financial and human cost: a great loss of value for the company and its employees, as well as for its turnover and reputation.
Professor Thomas Keil and entrepreneur Marianna Zangrillo gave a short online “masterclass”: “How do you make a success of CEO succession?”
See below for a summary of Professor Keil’s recommendations:
1. When it’s time to advertise a vacancy, it makes no sense at all to start by writing a profile for the new CEO (whether or not it’s based on their predecessor’s). This is the completely wrong approach to take, but one that is unfortunately still very common.
2. Instead, he suggests following this practical roadmap:
- Know your culture and purpose.
- Start with a thorough strategic diagnosis.
- Based on the above, determine the assignment or CEO mandate. This should answer the question: What powers should the CEO have and where should their priorities lie ?
- Only once you have completed this exercise, write a sort of competency profile that matches those requirements and start the search, either internally or externally.
- Then make this a continuous process with onboarding, coaching, back-ups, etc. This should not be a one-off paper exercise. Attracting talent and identifying good internal candidates should be an ongoing mission
3. A thorough strategic diagnosis by the board of directors is therefore required to determine the CEO’s mandate and profile. Depending on the amplitude of the strategic transformation desired and the time-scale available, there are something like four possible assignments for the CEO. We can present these in a simple quadrant.
Are you looking for business as usual, further evolution, a total turnaround or a transformation? Each of these assignments requires a specific profile, some of which you will have to look for internally and some externally. Once the right box has been ticked, it is much easier to write a profile for the next CEO. If you’d like to know more, check out the book:
« The Next CEO »
Professor Thomas Keil and entrepreneur Marianna Zangrillo are the authors of “The Next CEO: Board and CEO Perspectives for Successful CEO Succession”. In their consultancy work on boards of directors, CEO succession and leadership teams, Keil and Zangrillo bridge the gap between advanced academic research and practical insights. .
Wout van Impe, Global Partner and Country Manager for MU in Belgium, who spoke next, told us that over the last 50 years, we have continued to see 40-60% of CEO appointments fail in the first 18 months. He showed us an astonishing slide with numerous headlines about CEOs who had been prematurely dumped, from Sporting Anderlecht via Ontex to BPost. Definitely not a pretty picture…
He then extended that basic idea to consultancy practice, because what we have here is indeed a diversity and performance problem.
Boards of directors tend to underestimate the importance of how difficult it can be to determine the kind of leadership they need. We all sometimes have ‘weird’ ideas about what makes a good leader. In addition to discussions about internal succession vs. executive search, they spend time debating the various kinds of leadership, although style is actually irrelevant when it comes to getting results.
For example, he sketched a caricature of the old boys’ network, which on the one hand favours a series of candidates similar to themselves and on the other flatly ignores other, objectively more suitable, leaders. Decisions are made on the basis of general but incorrect assumptions or overly subjective evaluations made by an assessor, without access to all the relevant information. Nor do they take into account that, for example, ‘charisma’ has no meaningful impact on the quality of leadership. And experience doesn’t lead to better intuition.
“If we selected leaders based on competence rather than confidence and on modesty rather than charisma, we would have a lot more competent leaders and a lot more female leaders!”
Wout van Impe calls for a completely different approach to CEO selection and development. Context is everything: you need to both know it and understand it. For every context, there is a different leadership style that works well. In addition to the context, it should be clear what results are expected and what the key tasks of the position are. But you certainly don’t have to choose a CEO based on a particular type of leadership or specific personality traits.
The best method of selection is a kind of internal internship for a period of a few months. Unfortunately, that is not very realistic. On the other hand, you should certainly aim to avoid allowing your decisions to be influenced by any kind of bias. In fact, you should limit yourself to 3 to 5 so-called essential ‘game changers’ and then select based mainly on those characteristics. “The appointment of a CEO requires much more rational thinking. Avoid any potential ‘subjective brain fog’ or myths in your rational decision-making process. Base your decision on facts, and facts alone!”
The personal testimonies in the closing panel discussion illustrated the accuracy of both keynotes. They quickly reached a consensus on the importance of a systematic, even scientific process of identifying the next CEO. But they also acknowledged that achieving that strategic alignment or consensus on the fundamentals is not that easy in practice. “You can never just assume that everyone knows what the strategy is.” The greatest responsibility (for process) lies with the chair. They should not only form a solid partnership with the CEO; they are also responsible for ensuring the shareholders are aligned as far as possible in terms of what is critical and what is crucial.