Article: How Should Companies Hire a CEO that Lasts


How Should Companies Hire a CEO that Lasts

Companies need to go beyond the traditional process of selection and create mechanisms to explore the inert capabilities of the candidate

Poor recruitment process accounts for failure rate of 30% to 40% of new executives coming into companies


To improve the odds of hiring, companies must ramp up their due diligence process and evaluate by giving him / her action-oriented test tasks


 Hiring a successful CEO is no rocket science. All that companies need to do is to go beyond the traditional process of selection and create mechanisms for exploring the inert capabilities of the candidate

Ron Ashkenas and Justin Wasserman

Not long ago, a CEO of a major corporation called it quits after being there for only two years. Although the official statement said that he left ‘for personal reasons’, in truth he was not a good fit with the company, had alienated many of his colleagues and demoralized the business he was leading. Most disturbing, however, was that this same executive had a pattern of similar failures in previous positions — but somehow that history was either missed or ignored when he was hired. Many years ago, Sigmund Freud talked about the concept of ‘repetition compulsion’, which is doing the same thing over and over. This dynamic failure has to do with senior leaders who have exhibited certain patterns in the past that got them into trouble, but then get hired anyway into a new company where they do the same thing.
Unfortunately, this is not an uncommon situation. Studies peg the failure rate of executives coming into new companies at anywhere from 30% to 40% after 18 months; and that 40% of all CEOs last no more than two years. While the failure rate cannot be pinned exclusively on a poor recruitment process, the data do suggest that the recruitment process is a significant contributor to the revolving leadership door. The costs of this failure rate are enormous — missed business objectives, unproductive employees, distracted colleagues and wasted and duplicated recruiting fees. It’s a significant drain on productivity.
So what can Boards do to improve the odds of hiring a successful CEO or other senior executives? Consider three relatively simple steps:
To start with, ramp up the due diligence process. Most CEO candidates come through executive recruiters, and the assumption is that they have done their research. However, search firms have a vested interest in placing their candidates, and often rely on the candidates themselves for references. These reviews should be supplemented with your own investigation. Identify people in the candidate’s previous companies and give them a call; talk to people in the industry about the candidate’s reputation; and find people in your own company who might have crossed paths with this person previously. The more the data an organization can collect, the greater are the odds of uncovering previous patterns that might have gone unnoticed.
Once you have a candidate that you want to consider, the second step is to go beyond the typical interviews. Most CEO recruits are subjected to a series of one-on-one meetings with Board members or other senior executives, many of whom are not trained in effective interviewing techniques. So they end up having pleasant meetings, exchanging impressions, and in the end making a decision based on relatively little data. To make this process more robust and revealing, create other mechanisms for seeing the candidate ‘in action’. Ask the recruit to make a presentation; give the candidate a problem situation and ask her to develop a range of solutions and a summary memo; conduct a role play on how to deal with a difficult employee or listen to their thought process for moving into a new market; or ask the person to facilitate a meeting with several other executives on a particular topic. The range of possibilities is really unlimited once you liberate yourself from the constraints of traditional interviews. The key is to see how the person thinks on her feet and how adaptable s / he is to the culture of your company — information that is difficult to uncover in a series of friendly peer interviews.
Finally, the third step that you can take to increase CEO hiring success is to reduce the number of outside candidates. While it is certainly important to continually enhance your company’s gene pool with outside DNA, for most companies it should be the exception rather than the rule. However, Boards consistently make the same mistake in that they do not believe there is a feasible successor within their own organization. Similarly, the board wrongly compares their internal candidates’ capability to that of the outgoing CEO on their last day on the job instead of their first when they were still rising to the challenge of taking on the ‘big job’.
If your organization has a strong and consistent succession and development process (as most Boards mandate for governance reasons), you will have good candidates for top positions — candidates who already know how to succeed in your company’s culture. Unfortunately, many of these plans are not executed once a need for a new leader arises. For example, at the 1,000 largest US companies (by revenue), 80 new CEOs were appointed in 2008 and only 44 of them, or 55 %, were promoted from within.
Of course, none of this is revolutionary or the equivalent of organizational rocket science. But if you can put these steps in play, it can have a huge impact on your company’s success.

Ron Ashkenas and Justin Wasserman are Senior Members of Schaffer Consulting, based in Stamford, Connecticut, U.S.A.

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Topics: Leadership, Strategic HR

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