Of all the high stakes transitions an organization can experience, few are as fraught with risk as the selection of the Chief Executive Officer. The Chief Executive Officer is not only the leader of the company but he or she is the face of it. Jim Cramer, on CNBC, doesn’t interview the General Counsel. He talks to the CEO. A major customer? You want a meeting with the CEO.
My guess is that more people in the US could tell you who Tim Cook is than who leads the Department of Defense is or how many Supreme Court Justices there are. (Tim Cook, if you have been living under a rock, is the CEO of Apple; Ashton Carter is Secretary of Defense; there are nine justices on the Supreme Court. At present there are eight justices due to the sudden death of Anthony Scalia and the decision of congress not to consider the nominee put forth by the President.)
One of the most important jobs of a board, partner committee, or leadership group representing the owners, is to select and oversee the performance of a CEO. Below are the top myths I have encountered in over two decades of advising on this topic.
Stack the deck in your favor by avoiding these myths:
1. Companies need a CEO Succession Plan.
No, they need a succession process. CEO Succession requires an ongoing process, something the board discusses routinely. In addition to planned transitions, companies need contingencies for unexpected transitions. The risks associated with an emergency transition, for which no plans have been made, are high and leave boards vulnerable to just criticism.
2. A CEO transition can be done in 60 days.
False.A change in leader can happen quickly but an effective CEO transition includes key elements. Click To Tweet
These elements are:
- Board ownership.
- Clarity and alignment about the desired future state of the business.
- Agreement about what the next CEO must be like and why.
- Understanding of candidates at a deep level.
- Keeping the organization focused during the process.
- Retaining talented, but unsuccessful candidates.
- Establishing strong relationships after the new leader is installed.
3. We don’t need help.
False. CEO succession doesn’t happen often. It is nearly impossible for most companies to build a competency in this process.
4. A CEO hired from the outside will be more successful.
False. In fact, it’s the opposite. CEOs brought from the outside tend to oversee poorer financial results, have shorter tenures, more failures and are more expensive to hire. Exceptions are when a turnaround is needed.
An external candidate can seem more ideal. It is difficult to know their weaknesses as well as someone whom you know well. You need to ask: “Does the internal candidate meet the requirements for the role?” If so, there are distinct advantages to selecting them.
5. There are not enough good candidates.
Maybe. I nearly always find talent in my client companies that they have overlooked.
6. The right person will be obvious and naturally rise to the top.
False. Overwhelmingly, people think of succession in terms of “who” and “when.” Before thinking about “who”, the board must achieve alignment on key strategic issues and organizational needs.
7. Key people will leave if not selected.
False. It is an inaccurate assumption that CEO transitions inevitably cause the loss of key people. It does happen, but more often when the process is poorly managed. In our practice, we achieve a startlingly high rate of retention of talent, over 95%.