Regime change is always tricky, but replacing one chief executive with
another doesn’t have to be a traumatic, life-threatening experience. Paul Simpson
investigates
The pitfalls of handing over power are almost as great for companies as they
are for dictators. Yet, half the US chief executives questioned last October by
the Centre For Creative Leadership, said their HR departments were making no contribution
to developing new leaders.
At best, it is a damning indictment of the relationship between chief
executives and HR. At worst, it is a damning indication that many HR
departments aren’t doing their job. But the pain of transition can be eased if
– guided by HR – the company heeds a few simple tips.
1 Don’t buy unless you have to
Rakesh Khurana, assistant professor of organisational behaviour at Harvard
Business School, says: "When a chief executive steps down at the natural
end of their tenure, the appointment of an outsider can lead to reduced
financial performance." But if you lose a CEO because your company isn’t
performing, you’re probably better off hiring an outsider.
Cary Cooper, professor of organised psychology at the University of Manchester
Institute of Technology, has a shorter soundbite for the same rule: "If it
ain’t broke, why try to fix it?"
New chief executives – especially those recruited externally – change
companies in ways that are both obvious (they’ll appoint their own managers)
and subtle (they inevitably come to symbolise the company’s new values and
personality).
Strong external candidates often appear threatening, and change is rarely
comfortable – especially for those who feel they are being changed. And if you
hire a CEO to transform the company, don’t complain if they occasionally make
decisions without asking you.
In the US, it is estimated that 45 per cent of companies have no mechanism
for grooming the next boss. The figures are probably not much different in the
UK. "Even big companies find it hard to hang onto more than one or two
chief executive contenders for long for very obvious reasons," says HR
consultant Paul Kearns. "When Jack Welch got the top job at General
Electric, two of the other contenders left shortly after he had won the
race."
It is easy to underestimate internal candidates – working with managers
magnifies their flaws – and the converse is true, as you may not discover an
external candidate’s flaws until it is too late.
Before your directors make up their minds, you could mention Jim Collins’
bestseller, Good To Great, in which he found that exceptional firms were
far more likely to recruit their bosses internally.
Every company should occasionally look to the market for talent, if only to
widen the managerial gene pool. But if you’re always asking a headhunter to
fill the top slot, the fault may not lie with your new CEO, but with the
company.
2 Don’t hire celebrity chief execs
In the US, the proportion of externally recruited CEOs soared from 8 per
cent in the 1970s to 19 per cent in the 1990s. Yet studies suggest they don’t
perform any better than bosses appointed from within – they’re just more
expensive.
The ‘larger than life’ chief executive is now out of fashion. They were
often chosen for the wrong reasons: their CV was good enough to give the board
an alibi in the event of failure, their appointment would impress the investors
or – worst of all – they were deemed to be ‘charismatic’.
The current trend is leaders with some humility, who walk into a new company
admitting their level of ignorance.
It is too early to write off the high-profile chief exec altogether. As Lou
Gerstner proved when he took over the top slot at IBM in 1993, sometimes it is
just the kind of appointment a company needs to initiate change. And unlike
some of his peers, he couldn’t be accused of spending more time on a book
proposal than a business plan – he didn’t publish his bestseller, Who Says
Elephants Can’t Dance?, until he had retired.
3 Take the right kind of risk
Six years ago, Bruno Nespoli, the second-generation owner of a loss-making
Italian supermarket group Unes, did something that sounded very unwise indeed.
He hired Pier Mario Vello as his new CEO – a former pharmaceutical company
executive, whose main claim to fame was writing several bestselling business
books.
But Vello transformed Unes, hosting seminars to introduce a new set of
corporate values that focused on creativity, optimism, loving the job (as well
as the customers) and tolerating frustration. Within five years, Unes had
become one of Italy’s most profitable food chains, and was sold to an Italian
retailing magnate.
Not every company wants to (or should) hire the new Tom Peters. But
sometimes, they should have the guts to be different.
"What you see a lot of time in business – just like in football
management – is companies recycling failure," says Cooper. "Just
because someone used to manage Manchester United or ICI, doesn’t mean they
could run your company. And if they’ve failed, you need to know why."
In other words, think twice if you are about to hire a candidate such as
Brian Staples – the 56-year-old chief executive who has left two troubled
companies (private finance initiative company Amey, and United Utilities) in
the past five years.
4 And then reduce the risk
Secrecy inhibits the efficient operation of the market for CEOs. Some
element of cloak and dagger is probably inevitable (such appointments can,
after all, affect share prices), but Cooper says it can also harm the new CEO’s
prospects.
"Even more important than the relationship between a chief exec and a
chairman is the relationship between a new CEO and your senior managers.
Anything you can do to build that relationship is going to help your new boss
and your company. So why not try work sampling? Or at least find a way for the
new chief executive to meet the team. That is more important than meeting the
directors."
HR consultant Paul Kearns agrees: "You have to get the chemistry right
– the relationship with key stakeholders should be tested before if
possible."
And look out for other risk factors – one of the most obvious being the
shift from private to public sector. Kearns says this shift can be particularly
tricky.
"Adam Crozier’s move from the Football Association to the Royal Mail
seems a big gamble. He has no experience of running large public sector
organisations with a bad industrial relations history."
While Crozier learned a few lessons about the public sector’s unique ways
while running the country’s most visible sporting body, other captains of
industry might be more complacent.
Cooper says: "Every private sector manager believes they could run the
public sector more efficiently, yet that confidence isn’t always supported by
the facts."
The sorry tale of Lord MacLaurin is a case in point. For all his gravitas
and good ideas, the man who revived Tesco and ensured a smooth succession, has
signally failed to revive cricket as the chairman of the English and Wales
Cricket Board.
5 Write a job description
It sounds silly – everybody knows what a chief executive does, don’t they?
Yes and no, says Cooper.
"Look at the other positions on a board. The roles played by a
marketing or a finance director are fairly well defined by a list of technical
functions. It sounds self-evident that the role of a chief executive is to lead
a company, but you need to define what kind of leadership you want."
If your job description says you are looking for a ‘proven leader’ who is
‘decisive and action-orientated’, do yourself a favour: don’t even show it to a
potential candidate, just chuck it in the bin.
6 Have a little faith
Nobody knows quite why the RAC’s new chairman designate, Alan Bowkett, quit
last November after just four months in the job. But the fact that Sir Trevor
Chinn – the man who Bowkett was supposed to replace – stayed on for another
year while Bowkett was bedded in, could not have eased the succession.
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The simplest thing you can do to help a new chief executive, is to gently
ensure the old boss leaves the building – for good. In football, it is known as
‘Sir Matt Busby syndrome’.
Busby famously managed Manchester United when they became the first English
club to win the European Cup in 1968. But he then undermined much of the good
he had done for the club by hanging around like the ghost of Banquo in MacBeth,
while his successors struggled to cope with his legacy. It is one of football’s
most famous and cautionary tales, and a common theme of corporate life. Don’t
let it happen to your company.
