Companies need to assess the potential CEO candidate against global benchmarks in order to have the right fit
Hiring someone at the No 1 level is owned by multiple stakeholders
When Infosys roped in executive search firm Egon Zehnder to identify and shortlist possible external candidates who could be considered for the position of chief executive officer, it firmly put the spotlight on CEO succession planning and the role of the executive search firms. Companies mandate the search firms to help them narrow down the potential candidates for the CEO post.
In an article published at Knowledge@ Wharton, Peter Cappelli, director of Wharton’s Center for Human Resources, was quoted as saying, “You generally don’t hire outsiders to be CEO unless the company needs a change in direction.” In the case of Infosys Technologies, that definitely rings true. However, the trend of hiring an outsider as CEO highlights the lack of leadership development programmes within the companies and their growing percentage shows the lack of confidence the board has in inside ranks.
The success profile of a CEO must not just include the competencies for which s/he is known, but also make sure that s/he is the right cultural fit for the organisation. Past performance does not indicate future success and hence the organisational context for such a hiring is also of prime importance.
This is where the role of the executive search firm comes in. Experts from various executive search firms said the companies need to articulate clearly what they seek in the CEO and only then will they be able to provide the viable options.
So, how does an executive search firm find a CEO? Atul Vohra, Managing Partner, Transearch India, said, “We try to understand the context and the nuances of the role. We figure out the kind of competencies required for the role and map the skills needed. Later, we put those competencies on a matrix against which we will judge and evaluate the candidates. We also have special tools that help you define and understand the cultural parameters, the competency fitments against which a candidate needs to be measured in order to remove the risk.”
Navnit Singh, Chairman and Managing Director of Korn/Ferry India, advises caution here. He says once the search is done, it is essential for companies to assess the potential CEO candidate against global benchmarks (provided by assessments) and detailed referencing in order to make sure they have the right fit.
It is important to define where the company is at present and where it needs to go. The CEO then has to be hired for that kind of growth, said Priya Chetty-Rajagopal, Vice President & Partner, Stanton Chase International.
It is imperative for a company’s growth that it finds the right CEO. Hiring a CEO is one of the most critical decisions in the lifecycle of a company, Vohra said. “You have to make sure that the risk of making a wrong hire is minimised as it can cost the company years in terms of the impact it may have, in terms of losing market share or the momentum the firm has in the market. Therefore, it is very critical that from both from a competence but more importantly from a cultural standpoint that the assimilation of the candidate is seamless.”
Concurring, Chetty-Rajagopal said, “Vision is a clichéd and oft used word, but in the case of CEO hiring, it is critical that the vision is examined and relooked at in response to the business, so that the right CEO is
hired to fit the company’s growth and vision. A mistake here will cost the company and search firm dearly, so this part of the search exercise is critical.”
Success in CEO selection depends in large part on shaping a sound succession process from the board level. Shareholder advocates now see good CEO succession planning as a reflection of the quality of the board itself, says a report from Russell Reynolds Associates. According to a recently released report on CEO succession by The Conference Board, a global research association, 27.1 per cent of S&P 500 companies facing a CEO succession hired an outsider for the top job in 2012.
But, how does the executive search firm play a fair and balanced role when it is confronted with a choice offered by the chairman or the Board? “One has to be impartial. One has to do an honest job and not play favorites as the best person must get the assignment,” Singh said.
Chetty-Rajagopal said the role of the executive search firm is to be strong advisors and partners to the Boards. “The understanding of the business, ecosystem, competitors and the financials is an important aspect of the search. The search firm should be strong advisors and partners, in addition to being rigorous executors of the Boards’ expectations of the CEO.”
It is essential that the search firm understands the focus of the company for the next five to 10 years. “The search firm should ensure that they get a candidate, who can stretch to the role as it evolves and changes with the company, economy, while still keeping his/her eye on goals and vision,” she said.
The one mistake that most Boards make is that they measure the success of a potential CEO candidate on the basis of his previous performance or against the incumbent. This, Singh said, is wrong. “Measurement against existing CEO’s is wrong. Candidates need to be benchmarked against future successes and what the company is looking at growing into,” he said.
Another thing that the Boards do wrong is that they are only responsive to shareholders or are eyeing short-term gains. “Boards today clearly realise that CEOs need a larger breadth of leadership, insights and global understanding in order to be effective. However it is possible, as has happened in the US, that Boards may sometimes get fixated on the here and now, and the need to be responsive only to the shareholders or short term value in their decision making and selection,” Chetty-Rajagopal said.
The level of diligence and assessment required for CEO hiring is very unique. Cultural fitment is very critical while hiring a CEO, Vohra said. Elaborating, his colleague Sangeeta Sabharwal, Senior Partner, Transearch India, said, “We could do the best search in the world, but if the candidate is a cultural mismatch, then there is no use. In a lot of M&As, if the cultures of the two organisations don’t match, the deal can fall through. Similarity of the culture or ability of the leadership to integrate the two companies will determine the fate of the M&A.”
She added, “Hiring someone at the No.1 level is owned by multiple stakeholders. Each of them has vested interests in bringing the right person on board. Before we begin the process, we get all the diverse stakeholders to agree on deliverables and competencies required for success in this role. Because their desires and wishes are incorporated into the process, they feel a sense of ownership about the incoming CEO. This is a part of the cultural assimilation process that is very critical.”
Most organisations look for the same thing in a CEO: They want someone who has the passion and the commitment with which he can drive the organisation to much greater heights. What ultimately all search firms look for in a CEO is leadership – the ability of the candidate to motivate, inspire and lead.