CEO transitions have always been challenging but never more so than in today's environment. We advise our clients to think of transition planning as a distinct process from succession planning that requires attention and thoughtful preparation. Your shareholder base, collectively, is a key stakeholder in the success of a public company CEO transition. The design of a successful CEO change must include shareholder perspectives and concerns. To gain a sharper sense of the challenges posed by CEO turnovers, as well as the risks involved, Russell Reynolds Associates reviewed CEO tenure and incidents of CEO turnover at S&P 500 member companies from Jan. 1, 2003 to Dec. 31, 2015. Across these 500 companies, there were 688 CEO transitions during that 12-year period, with 40% of the firms experiencing two or more CEO transitions. During that period, while the average departing S&P 500 CEO had a tenure of 5.9 years, a surprising number of CEOs departed quickly. Fully 13.1% of new CEOs left in less than three years, and 7.8% left within two years. Given the cost of and investment in CEO appointments, those are expensive misses. When looking only at external CEO appointments, the departure rates jump to 17.2% in less than three years and 11% within two years — a notable rate of failure. These are not untested leaders or unsophisticated enterprises. These failed appointments were the product of the succession and onboarding processes used by some of the world's largest and most successful companies.
Top of mind for most executives today are two topics: creating the right business model to thrive in a rapidly evolving marketplace and attracting the right human capital that can make their long-term vision a reality. A less common process in the C-suite is a deep investigation into how senior leaders define cultural norms that either do, or do not, set the stage for high performance. Through a wide range of investigations into the intersection of culture and leadership personality, from Apple to the NAVY Seals, the cultural composition of high performance has become quite clear. Executives who have not taken a hard look in the mirror to evaluate whether they are embodying the right values and showing their people in words and deeds that they matter might not realize that their organizations are losing momentum and entering a state of decline. Let’s take a step back to clarify leaders’ unique cultural responsibilities. Research into personality and culture has clearly demonstrated that the two are indisputably linked to high-performing organizations and, therefore, represent key levers in unlocking human potential. First, personality impacts how executives lead organizations, from decisions around resource allocation to their style in dealing with people, and drives a host of financial metrics, like investment in R&D, capital expenditures, return on assets, and cash flow. Second, though not intuitive for some leaders, executive leadership shapes organizational culture, and, in turn, culture colors what people pay attention to, the goals they set and how they work. Further, when we look at the overlap between leadership styles and culture, the intersection falls into four broad areas: Fostering stable relationships, facilitating a competitive culture, ensuring strong operations management, and focusing on adventurous innovation.
A major North American transportation company is losing market share as overall industry revenues rise. The autocratic personality and top-down, hands-on leadership style of its CEO is one of the problems, compounded by those on the management team, who don’t engage the workforce. Management is slow to implement recommendations from the field that could streamline and optimize operations, which creates frustration amongst employees. In East Asia, a telecommunications company is concerned that it is losing its competitive edge. Its business model has been disrupted by the impact of new technologies and other innovations. The CEO has typically employed a unidimensional leadership style, focusing on some key strengths that have worked for her in the past. However, the shifting interests and relationship-oriented values of its younger workforce has put pressure on management to evolve. The board questions whether she has the flexibility to do so. These two examples – of autocratic and situational leadership – are indicative of why organizations are rethinking what makes a leader successful. Boards are concerned that top executives lack the mix of qualities needed to inspire an organization with a clear vision for the future, spearhead day-to-day operations, implement organizational change, and motivate a workforce to transition to the new digital economy. From this introspection, a different management style is emerging and being adopted by successful organizations. We call it egoless leadership. It is based on broad concepts of confidence, trust, and engagement. Its focus is on future capabilities, where management potential, not achievement, is the new performance metric.
CPG Leadership: Critical Themes Across Roles: As we tuned into the 2019 Consumer Analyst Group of New York (CAGNY) Conference, Russell Reynolds Associates recognized a resounding theme at the epicenter of each discussion: innovation. Across the CPG landscape, future-oriented executives have prioritized the need to drive new capabilities – both internally and externally. In articulating their innovation mindset around organizational growth, these executives articulated the significance of innovation to consumer intimacy, highlighting the necessity of a seamless, targeted customer experience. Certain companies have embraced an integrated consumer data platform, while others are more focused on investing in immersive technologies that offer personalized customer experiences. CPG companies simultaneously emphasized the internal power of innovation with respect to advancing the power of their people. Executives are prioritizing talent that is aligned with the innovation culture-orientation, devoting resources to building organizational capabilities around agility, flexibility, and speed. As ever, developing, hiring, and retaining best-in-class talent remains critical to executing strategy in harmony with customer experience, optimizing performance, and enabling growth. Talent aligned for the future of the CPG industry is nonnegotiable.