CEO succession: Success traps and how to avoid them

A CEO change is always an exciting moment for all parties involved. Boards invest immense time and resources to find the next CEO for the firm. Stakeholders, inside and outside of the firm, are on their toes, as they try to anticipate where the new leader will take the organization. And last but not least, the new leader is in the spotlight, eager to make a visible difference, and under high pressure that any changes will have to be towards a more successful direction.

The expectations to balance are sky high and often diverging.

With that in mind, it’s not surprising, that the results of CEO succession vary hugely. While leaders such as Satya Nadella at Microsoft or Jamie Dimon at JPMorgan have managed to renew and transform their organization, other appointments like John Flannery at GE failed spectacularly, destroying shareholders’ value and sending their organization into deep crisis. So, why does CEO succession go wrong so often and, more importantly, what can boards and the incoming CEO do about it?

When the new CEO and the boards appointing them pay attention to avoiding the typical pitfalls they can increase the chance of a successful mandate:

1. The siren call of successful candidates versus identifying the right candidate for the specific mandate
   Most CEO candidates bring along an impressive track record and exhibit a winning personality. And all too often boards fall into the trap of being swayed by past credentials and charming personalities because they enter the search process with only a vague profile for the future leader, reach out only to their closest network for candidates, and trust in their experience for evaluating who is the best candidate. Others leave the process almost completely in the hands of executive search firms, which may suggest candidates they expect to gain the highest future revenue from and, due to exclusion agreements, may not even be allowed to tap into candidates from firms they have agreements with. The chances of success in such selection processes are not much better than just tossing a coin.

   Successful appointments need more considerations than that. Given the importance of CEO succession, boards should be strategic in identifying the leader which is most capable of developing the organization rather than the candidate with the best self-selling capabilities. To do so, a clear mandate for the future CEO is the first step –A clear understanding of the strategic challenges ahead and what these challenges imply for the capabilities needed by the top leader.

   CEO mandates can differ greatly. Some CEOs continue chosen strategic paths requiring first and foremost execution skills such as the appointment of Sundar Pichai at Google and Alphabet. Other CEOs are tasked to run a complete transformation or even a financial turnaround under time pressure like Larry Culp at GE following the failure of John Flannery. Such widely varying mandates require equally varying CEO profiles and any search process not starting from these considerations is bound to lead to failure.

2. Engaging in quick actions versus achieving sustainable results
   Once the board has identified the right candidate, the incoming CEO also needs to avoid some common pitfalls. First of all, attention must be paid to the pace of action during the early CEO tenure. Given the relentless pace of competition and impatient investors, many CEOs feel pressure to act almost on day one of their tenure. And to reinforce the need of such behaviors, all too frequently the importance of the first 100 days is being touted in the press. While focus on immediate action is clearly necessary in case of financial distress, and while it may be possible for a new CEO appointed from inside who knows the organization inside out to take quick action, more and more CEOs are hired from outside. Coming from outside these new CEOs have a steep learning curve ahead, in order to get to know and understand their new organization. In these latter cases, what may seem like decisive action at first, all too often is mistaken actionism that destroys long term value because poor decisions are being made on intuition, and based on too little information and understanding of the firm. Instead, new CEOs are often better advised to focus initially on listening and learning and to follow up with better thought out actions at a later point. For instance, when Mark Schneider took the CEO position at the European Fortune100 food firm Nestlé, he and the board, jointly agreed that he would engage in a learning period of close to half a year before starting large scale changes in the highly complex organization. Even when activist investors provided intense pressure for early action, Schneider and the board stuck to this game plan to avoid premature and reckless actions.
3. The isolated superhero versus building a personal platform for success
   Another trap that new CEOs must carefully avoid, is the belief that they can transform the organization by the authority and power of their role alone. CEOs continue to be pictured – and may even see themselves – as the lone hero that transforms the organizations almost single-handedly. CEOs falling into this trap fail to build a strong enough personal platform in the organization to drive their agenda.

   The reality is very different. Without a strong team and deep and broad networks throughout the organization that together form the CEO’s personal platform, no CEO can achieve results, especially in large and complex organizations. Building a strong leadership team and developing solid and trust-based relationships with key stakeholders inside and outside the organization early on are therefore not only key opportunities, but also practical requirements for new CEOs to drive the organization in the direction they and the hiring board envision.

   Building the personal platform begins from the top team. CEOs often need to engage in radical reshuffling of their management teams, like Jan Jenisch at the global leader in cement LafargeHolcim who changed seven out of nine top management team members during his first year of tenure. Building the platform, however, is not per se enough. New CEOs need to be able to access information unfiltered by their direct reports and have the support of many to drive their initiatives. This requires creating trusted relationships with the board, all stakeholder groups and across all levels of the organization, rather than just a narrow group of trusted lieutenants.

4. Do as I say versus follow my lead
   Finally, new CEOs may underestimate the importance of their leadership behavior. To succeed as a CEO often requires instituting painful changes for the organization. While change may bring excitement for some, for most members of the organization it means first and foremost uncertainty, stress, and additional work. To bring their organization along on what is often a painful journey, new CEOs need to motivate the whole organization beyond the call of duty. Doing so requires first of all a strategic vision that truly engages employees and speaks to their heart as much as to their head. Furthermore, such a vision needs to be accompanied by leadership behavior that “walks the talk”. For example, the former CEO of a Fortune 500 opened a company paid position for a personal hairdresser during flights on the corporate jet, while announcing job cuts and calling for personal sacrifices from employees to support a new vision. Personal leadership behaviors like humility, transparency, fairness and compassion cannot be underestimated, and are rather real behavioral requirements when a leader wants to turn a vision into a broad organization wide movement that drives results. Consistency in exhibiting such behaviors even when under intense pressure, is probably the biggest personal challenge that any new CEO faces and that requires extensive self-control and energy.

While most of the mentioned behaviors in this article would appear elemental upon first sight, many leaders forget them and fall easily into behavioral traps. It is therefore necessary that boards and new CEOs act against implicitly held personal preferences, often heard suggestions, and even personal convenience. Nonetheless the rewards of doing so –successful CEO succession– should be well worth the effort.

Written by Thomas Keil.