One of the hardest obstacles companies must overcome is replacing a CEO that leaves, whether it be for another job, retirement, or because they just didn’t pan out. Especially in the case of a CEO at a major company (think Fortune 500), the Board of Directors immediately begins to think of a successor. Do they promote from within? Do they contract with an executive search agency such as Korn Ferry?
There are a lot of decisions and preparation that need to take place. Members of the company, from outgoing CxO to the Board, all have important roles to play. The presence of a good transition process can be the difference between success and failure. 1/3 to 1/2 of all new executives will fail within their first 18 months on the job, according to a Harvard Business Review Article. Some common mistakes are overzealousness and lack of understanding of the cultural/political workings of the company by the Board and the new CxO.
“Boards often fail to grasp the complex nature of succession.”
Harvard Business Review
With a solid integration process, a lot of mistakes are easily avoided. This begs the question, however, as to why companies invest such little time into succession and transition plans. A 2010 study by Stanford and Heidrick & Struggles said that only about 50% of companies surveyed had onboarding or transition support for incoming CEO’s, but 69% of those surveyed think the CEO should be “ready now”.
There is a difference between possessing the experience to be ready and the detailed understanding of the new company needed to be ready. The idea that a plug and play CxO can enter a company and immediately be successful is preposterous. For the integration to go smoothly, the CxO needs to understand all aspects of how their new company or department works. Who has the most power? How are decisions made?
Even little things can change the whole dynamic of an office.
For example, take a former CEO that had an open office door, who was succeeded by a gentleman that installed a lock and an assistant. The employees went from a situation where they felt like the CEO was one of them to where they felt unimportant. The lock not only kept people out, but kept that CEO in and gave an impression that he didn’t care. The risk of high employee turnover increased dramatically, and resulted in several key employees leaving the company. It is one thing to hire someone for their credentials and how they look on paper, but their personality and working style is just as important. Boards want the companies to transition seamlessly after a CEO leaves, and personality is a huge part of that. Walking in to a new company without understanding the nuances can be the proverbial kiss of death for any new executive.
So why not promote from within? According to the Stanford survey, even after strong internal candidates are presented, 60% of those surveyed believe that the external search companies should continue at the same pace. The survey writers consider this a mistake, because they can easily lose strong internal candidates by keeping the search open too long. These internal candidates have a strong understanding on the dynamic of the company and how to best navigate the different channels.
Using these external search companies and not having an integration process can be very costly, especially if that person doesn’t pan out in their position. If the executive does not work as hoped, the Board and all other involved parties must begin again. Some statistics put the dollar cost at 200% of that executive’s salary to find a replacement.
At the end of the day, it is the decision of the Board on how to proceed. They will weigh the pros and the cons of both avenues, and choose the option that most aligns with their strategy. If they are looking to disrupt, they should bring in an outsider, but the underlying issues remain. Integration programs are an essential component to the effectiveness of a new CxO and clearly worth the investment.
CIS can raise a CEO’s “company IQ” higher in two days than the new CEO is likely to do organically in 12 months.
Corporate Insight Strategy has experience onboarding executives into companies with our TRaX 180 and TRaX Culture processes. Want to learn more about how we do it? Give us a call at 501-429-4194 or drop us an email at [email protected].