Organizations may be the sum of their parts but someone has to be in charge. Whether he or she is called CEO, President, Executive Director or something else, the leader is ultimately responsible for the success or failure of the enterprise. As such, choosing the right person for the job is likely the most important decision a Board or the owners of a business will ever make.
Not making the right choice can have dire, if not fatal, consequences for both the leader as well as the organization. Two-thirds of market leaders ten years ago no longer exist and the average amount of time a company stays in the S&P 500 continues to decline dramatically: in 1958, it was 57 years; in 1983, it was 30 years; today, it’s less than 16 years. Moreover, according to Chris Zook and James Allen of Bain + Co., fewer than 10 per cent of global companies have achieved more than a modest level of sustained, profitable growth over the past decade.
Not surprisingly, it’s the leader who pays the price. A ten-year study of 2,500 leading companies and 3,800 leadership turnover events (by Booz & Co., 2010) concluded that: “The tenure of CEO is becoming shorter, more complex, more intense with a lower margin for error or underperformance.” Approximately 40 per cent of new CEOs are fired or leave within their first 18 months on the job. And a shocking 64 per cent don’t make it to their fourth year in office.
The primary reason for firing a CEO today is underperformance. The principle causes cited most by Boards are the mismanagement of change, ignoring customers, tolerating low performance of others and “denying reality,” or failing to accurately see, assess and react to high impact circumstances that imperil the business.
The last failing is a largely consequence of choosing the wrong leader. CEOs who deny reality think they have all the answers and thus eliminate naysayers and heretics. They tend to believe that pressing challenges “shall pass.” They are unwilling to embrace the future and lack strategic foresight. Perhaps their greatest deficiency is an inability to achieve organizational clarity at the very time when the enterprise so desperately requires it.
To be fair, leadership failure is not necessary a reflection of the person in charge. History is rife with examples of people who failed in one organization then succeeded wildly in another. The reverse is also true since leadership is highly nuanced. The critical difference goes beyond lessons learned. For many leaders, the cultural “fit” may be the determining factor between success and failure. Hence, both parties should be mindful of the need for due diligence in assessing the fit.
What organizations may require in their new leader is dependent also on the current situation and where they want to go in the future. Some may be seeking radical transformation, in which case an outsider is usually advised. Others might be planning to stay the course – thereby suggesting an inside candidate as the best choice. Insiders already fit the culture; outsiders inevitably articulate a new culture.
Since Boards increasingly believe culture fit is critically important, they choose internal candidates 80 per cent of the time. The exceptions are noteworthy. Initially, HP believed it needed Carly Fiorina as a change agent CEO but eventually ousted her in part due to her alleged ruthlessness and self-promotion – behaviors far-removed from the company’s revered founders. On the other hand, Alan Mulally brought a different cultural mindset to Ford and, in the process, succeeded beyond expectations.
Cultures differ. Companies like Xerox stress collaboration and tolerance. Others, such as Microsoft, Apple and Motorola, have aggressive cultures that emphasize confrontation. And entities like GE are best-known for their strong, top-down driven philosophies.
Curiously, a 2010 Spencer Stuart study of 300 CEO transitions at top companies over four years concluded that insiders and outsiders actually perform about the same. What does make a difference is the health of the organization – insiders do better when the company is doing well; outsiders when the company is in crisis.
Beyond this fundamental distinction, the attributes sought in an ideal leader would obviously further reflect a myriad of corporate imperatives – the strategic intent, the sector, industry or marketplace, experience with previous leaders, competitive pressures, and the like. Not surprisingly, many Boards come to know what they need in a new leader as a consequence of discovering the deficiencies of their incumbent.
The bottom line is that companies today must know the difference between the good, best and poor CEOs. Good leaders know who they are, what they uniquely bring to the table, what they can change and what they can’t. The best are change makers – they know how to lead people to new places and new realities. The worst are those who are unable to make tough decisions, afraid to take unpopular stands, rigid and inflexible, and can’t meaningfully connect with people.
So how can a Board find the right leader for their organization? Here is a comprehensive list of characteristics that should be considered during the search for “the one” to lead an enterprise to its chosen destination. Optimally, I suggest, a leader must possess:
- Leadership “smarts”: The ability to see “what really counts” and act upon it;
- Resilience: Determination, grit and guts borne of having survived difficult situations;
- Perspective: The ability to step back, stay cool under pressure and see the bigger picture;
- Focus: Knows how to cut through the clutter and pinpoint the critical issue(s);
- General knowledge: A diverse background and understanding of a wide variety of things;
- Teaching ability: Able to inspire people to listen, understand and seek to try new things;
- Global sensitivity: Cross-cultural awareness that is not locked into stereotypical thinking;
- Can make others think: Asks clever, penetrating questions and listens to the answers;
- Humility: Aware of his limitations and demonstrates a willingness to learn from mistakes;
- Creativity: Can think beyond the box, utilize intuitive judgment and be mindful;
- Fitness: Is psychologically, emotionally and mentally ready for the challenge;
- Reflective: Able to look for deeper meanings and insights in personal experiences;
- Maturity: Intentionally and appropriately matches emotions to fit the situation;
- Presence: Commands attention with charisma and superior communication skills;
- Integrity: Possesses an explicit and consistent moral compass; and
- Authenticity: Knows who she is and is comfortable in her own skin.
Few people possess all the attributes listed. So it’s imperative that Boards do everything possible to ensure the individual is the right fit for the role and the organization. The prospect of cultural misalignment, and the potentially harmful financial and cultural toll a rapid CEO departure places on an organization, is just too great a cost to risk a bad choice.
The gatekeepers, be they Boards or equity owners, must know intimately what their organizations require in the leader role and must find the one individual who can take them from where they are to where they want to be. Making the right choice or not may result in either sustained profitability or going out of business. Because leadership today is the one advantage that cannot be copied by your competitors.