The Myths and Realities of CEO Succession
When a new CEO takes office, there are expectations about his/her new management that are not always realistic.
In 2011, 14.2% of the CEOs of the 2,500 largest companies in the United States were replaced. According to a study by consulting firm Booz & Company, 69% of the successions were planned, 15.5% were resignations of the former CEO and 15.5% due to an acquisition or merger.
There are a number of preconceptions about the proper procedure when a new CEO takes office. Based on the experience of recruiting CEOs at the consulting firm Russell Reynolds Associates, I have identified the most common and recurring myths associated with the transition in the leadership of the company. The reality, however, is much more pragmatic and many of these myths crumble.
The expectation that accompanies the arrival of a new CEO is understandable and natural. The management team yearns the opportunity to introduce themselves, make a good first impression and ideally position themselves favorably in the eyes of the new leader. On the other hand, the rest of the organization experiences curiosity about the new CEO. The anxiety of the transition and succession process has left a momentary leadership gap that seeks to fill and placate.
The board of directors want to see results and a vindication that its decision to carry out the change was correct and in the best interest of shareholders. In the case of public companies, the market response and the share price after the announcement is a clear reading of how the change has been perceived, and of how investors value the new captain of the company.
Each change of CEO is accompanied by a specific and particular history of the company and it is clear that the circumstances and problems of each case are unique. The visibility generated by a sudden change of CEO in a public company generates a higher level of public scrutiny than an orderly transition in a privately owned family company.
An orderly, structured and planned transition allows effective communication between stakeholders and related parties who set clear expectations of the new CEO. Regardless of the reason generating this transition, either retirement, performance, market conditions or a merger and/or acquisition, a structured and clear plan of how the succession will take place is necessary.
The scrutiny towards the new CEO is huge. Initial management of his or her new responsibility is essential to create an image and reputation inside and outside the company that can be the basis of a momentum for success. Or, otherwise, a negative baggage that can be converted into a weight, resting agility and credibility before the board, management team and the general public within and outside the company.
The strategic direction of the company must be carefully considered and given sufficient time because the impact is critical and long-term.
Hector Hernández Pons,
President and CEO of the Hérdez Group
Around these expectations, preconceptions are generated surrounding a CEO succession; some are true and others false. I found that only some of these ideas are really effective and implemented by a CEO when taking charge of a new company. Regardless of the type of company (domestic, foreign, public, private), I found several similarities in my discussions with CEOs that are both useful and relevant. Based on this dialogue, I discredited or validated several preconceptions associated CEO succession.
Immediate redefinition of the strategy of the company is key
FALSE: The CEOs interviewed mentioned that the redefinition of the strategy is solely due when there is a specific requirement to provide "a change of course" in critical situations. In contrast, the strategy should remain until they have a clear understanding of the real situation of the company, "The strategic direction of the company must be carefully considered and given sufficient time because the impact is critical and long-term.", says Hector Hernandez Pons, President and CEO of Hérdez Group.
Probably, the most important suggestion that a new CEO can take onboard is to evaluate, analyze and listen before making decisions of great impact. It is imperative that the CEO understands the conditions under which he/she takes over the company and if alien to the industry or sector, they should heavily research the sector dynamics. The redefinition of strategy must be the result of a deep analysis and evaluation.
It is essential to quickly demonstrate results
TRUE: "Achieving immediate successes when assuming the CEO office can prove your progress and sends a very clear signal to the organization,” says Corrado de Gennaro, CEO of Johnson & Johnson Mexico, “These initial achievements often allows the CEO to quickly establish credibility with the management team."
Several of these achievements are evident and obvious to experienced CEOs and obey to management practice. There are priority issues that must be addressed swiftly and promptly. Doing so sooner than later creates a confidence and credibility in the new administration. Initially, the relationship between the CEO and the management team could be described almost as of mutual evaluation, especially when some of the members of the management team aspired to assume the CEO office themselves. It is critical for the new CEO to establish his reputation as an experienced manager with the ability to assume the position from day one.
The management team must be dramatically reshaped
FALSE: The CEO of a private and family company told us that "it is a sensitive issue to make movements without first understanding the unofficial operation of the team because you can lose a point of view or different view from the rest of the group and this perspective can provide tremendous value to the new CEO".
You have to evaluate, understand and learn in depth about each of the members of the management team; assess their skills, experience and potential before making a relevant decision in this regard.
Another CEO added, "We run a huge risk of losing many years of experience, trips and learning if you decide to remove someone from the company with the intention of sending a message at the beginning of management."
The impression of the 'personal touch' is imperative
TRUE: The need to demonstrate that things have changed is fundamental. It is unthinkable, given the impact of the CEO in the rest of the organization, that his/her way of acting will not permeate all levels.
It is important that the agenda and business philosophy of the new CEO is perceived throughout the company as soon as possible through his/her management. It is a great opportunity to send a clear message of how he/she intends to handle the company and, without a doubt, it will form the basis of his/her strategic agenda and plans for change.
"The personal touch is key,” says Corrado de Gennaro, “It is a very effective mechanism to gain credibility and send a message".
The first 100 days are crucial
FALSE: "More than a determined lapse of time, the important thing is to move forward in defining the agenda of the company and act accordingly," says Hernandez Pons.
The rest of the CEOs that I spoke with also take this view. While they agree that it is important to have a time parameter to assess progress, the first 100 days do not necessarily represent the time required to determine the success of the new CEO. This differs depending on the type of business and its specific conditions.
In public companies, it is recommended to evaluate the quarterly market report as a first indicator of progress. In private companies, it shall be in the first meetings of the Board where accounts of the beginning of the management are rendered. It is critical that the new CEO defines a concrete plan of action with metrics, timelines and clear targets.
By Francisco Ruiz Maza, Executive Director at Russell Reynolds Associates.