The recruitment of the man/woman at the helm, the captain of the ship, the CEO is one of the most important decisions a Board or an Entrepreneur can take. Managed correctly, this process yields great dividends for stakeholders (and literally for all Shareholders) but mismanaged, wrong decisions have a cost that is reflected much beyond just the company bottom line.
Where can companies focus to ensure this process is successful? If I were to look at the top 4 cardinal points of the compass, I would read these as:
You’d automatically think that you’ve to check the CEO’s past experience by verifying his track record and running a host of background checks. Yes, that’s true, but that’s not the only experience that needs to be vetted.
The truth is, especially in new age India, not many decision makers have hired more than a handful of CEOs in their career. This limits their own experience. If I’m a startup fresh out of college and I’ve received that all-important VC funding, how will I hire a CEO? How do I even know what I need my CEO to accomplish? Which is when expertise and joint man-years of running and leading businesses of your Board comes in. Board members have networks that are large and diverse and their ability to whet a candidate through formal and informal means through this network becomes an invaluable asset in the course of the hiring. Bringing in a third party to do a fair and impartial assessment of the candidates (Beyond the Board) brings a neutral and often outside-in view. This can be a panel of independent assessor i.e. search firms, your forums if you’re in the EO/YPO/WPO, friends and well wishers. It’s important to weigh in every piece of advice before the marriage is sealed.
Values & Vision
Generally, as a simple rule of thumb, there are two types of companies that would require hiring a CEO. One is a single personality driven organization, Small Medium Enterprise, which would require a CEO to manage the day-to-day operations. The second is a larger corporate entity with a board helming the major decision making processes. And to add to that, each company, whether large or small, is driven by its unique set of values.
Remember, the CEO, at the end of the day is a person with a clear-cut set of personal values, goals and ideas. A CEO hired to pander to the whims of the founder/owner would soon balk at the micromanagement and quit. A CEO hired by a Board, which doesn’t internally agree on what the CEO’s responsibilities should be, and what they want him to accomplish, would lead to disorganization. Naturally, both scenarios involve wanting the CEO to increase shareholder value, but that’s about as useful as telling a chef that you just want food, without really deciding what you want to eat.
In my own experience, I have seen many a scenario where the Founder or a Board is so deeply swayed by a charismatic candidate that they completely forget the cardinal rule- align visions and values first. Focus on the rest later.
Nature of the hire
The most ignored aspect of CEO hiring and often at the cost of losing really great talent is to overlook the internal potentials without giving them a fair and fighting chance. This is especially true in India where I have witnessed more than a majority of internal candidates getting “put on the bench” as the Board seeks outsiders. In contrast, in more evolved economies/ businesses it is de riguer to put internal potentials through the same assessment process as external candidates to get a complete 360-degree view on the strengths and weaknesses of the entire candidate pool. So the next time you’re hiring a leader, pause before you set off on the hunt, farming/nurturing could be the better choice.
Size matters but not as much
It’s human to crave security. I want to hire someone who has experience running a similar sized company in the same industry and in the past has delivered amazing results. Your potential CEO is probably not going to want to repeat this experience again. Truly good candidates will want to move up to greater challenges and better opportunities.
How do Boards normally choose from a pool of candidates? They usually look at the size of the organization the potential CEO has handled in the past. If their company is worth $100 mn, then they would be unlikely to consider a CEO who ran a $50 mn company. This can be problematic.
A good CEO is stimulated by a challenge. It’s only a matter of time for the 50 to become 100. If the bottom-line numbers are the only criteria, then it becomes very self-limiting in the course of high potential hiring. As a CEO, I know I would like to grow to 10x my current potential in the next 5 years. So why would I even consider running a company that gives me 2x growth? Sure, it’s unwise to hire someone who only has experience running a $50mn company to manage a $10 bn company, but the rule of thumb is the factor of 10. If the new company is 10x the size of the CEO’s past work, he will not be overwhelmed by the difference. Too little, he might get bored. Too much, he might quail.
The stakeholders will have to understand that an ideal candidate is a fictional being and consider someone who’s willing to grow and not just someone who offers mental comfort by dint of past experience.
In my opinion, these 4 points should be the primary consideration factors for CEO/ CXO hire. Since we’re talking about 8 points of the compass in this approach, it’s important to have 4 more cardinal factors in mind as well.
What a lot of Founders /Owners and Boards miss out on is the timing of the hire. If a search is to be initiated, more often than not it happens when the current CEO has announced his exit, or the business is floundering and the Board feels it’s time to find a new leader. This is the worst time to hire.
It’s important to have succession conversations often with the existing leader. And it’s imperative to push him/her to groom a successor early during his tenure. Boards may often hesitate to do this in the fear of a conversation “done wrong” fostering insecurity within a successful, performing leader’s mind, thereby rocking the boat. I would recommend that the best way to approach this is to have the “In a contingency, name in the envelope for a successor” type conversation.
The most progressive companies and Boards are meeting potential successors /hires and engaging with them both formally and informally at all times. It’s a continuous, dynamic process rather than a static, here and now decision. In my opinion, if a company has decided on a succession planning strategy for the CEO, it needs to give itself at least 18-24 months to make the right choice.
Scale of business
This is a hygiene factor but important nevertheless.
Does the candidate have experience running public or private companies? The structures and regulations of both are quite different. The expectation sets and firefighting requirements are significantly divergent. Any CEO hopeful of the public company profile needs to show experience in working with the board of a public company and creating sustainable shareholder value.
Is the business in a single location or spread across multiple cities? Multiple countries? How large is the international component of the business? The CEO candidate should ideally have some experience handling businesses that operate in similar geographies (cultural inflexibility can often become a huge derailer of CEO success).
Alignment of the ‘why’
I’ll just leave two questions here for the board to consider:
- Does your CEO hopeful understand, appreciate and align with the “why” we are in this business?
- Does your CEO hopeful understand why customers spend money on your company?
A CEO’s primary job is to further the vision of the company. This becomes impossible when the CEO’s “why” just doesn't align with the “why” of the Founder/Board.
When you have a CEO who genuinely cares about the ‘cause’ of the company, they stay and they make a “difference.” The CEO who will go the extra mile is the one whose belief system is aligned to what the company does.
Despite being in the search business, I have been a very vocal proponent of Build vs. Buy when it comes to CEO hiring. Hiring the elusive “perfect” candidate often leads Boards and Founders down a long winded path, where more often than not, they hire not by design but default, as they are running out of time and options. A highly recommended option is to hire the best fit, even if the candidate is 70% ready, in a succession planning role, and invest time in grooming and developing him to grab the reigns and steer effectively. There is nothing more desirable than an overlapping handover period between the current incumbent and the successor. The Board needs to invest face time with the successor building trust, confidence and handholding him through a ’relatively’ unfamiliar terrain. This holds true for internal hires too, where this process (Board handholding) becomes the single most critical factor driving the incumbent’s success.