12 May

How to buy a CEO

first_img Comments are closed. Regime change is always tricky, but replacing one chief executive withanother doesn’t have to be a traumatic, life-threatening experience. Paul SimpsoninvestigatesThe pitfalls of handing over power are almost as great for companies as theyare for dictators. Yet, half the US chief executives questioned last October bythe Centre For Creative Leadership, said their HR departments were making no contributionto developing new leaders. At best, it is a damning indictment of the relationship between chiefexecutives and HR. At worst, it is a damning indication that many HRdepartments aren’t doing their job. But the pain of transition can be eased if– guided by HR – the company heeds a few simple tips. 1 Don’t buy unless you have to Rakesh Khurana, assistant professor of organisational behaviour at HarvardBusiness School, says: “When a chief executive steps down at the naturalend of their tenure, the appointment of an outsider can lead to reducedfinancial performance.” But if you lose a CEO because your company isn’tperforming, you’re probably better off hiring an outsider. Cary Cooper, professor of organised psychology at the University of ManchesterInstitute of Technology, has a shorter soundbite for the same rule: “If itain’t broke, why try to fix it?” New chief executives – especially those recruited externally – changecompanies in ways that are both obvious (they’ll appoint their own managers)and subtle (they inevitably come to symbolise the company’s new values andpersonality). Strong external candidates often appear threatening, and change is rarelycomfortable – especially for those who feel they are being changed. And if youhire a CEO to transform the company, don’t complain if they occasionally makedecisions without asking you. In the US, it is estimated that 45 per cent of companies have no mechanismfor grooming the next boss. The figures are probably not much different in theUK. “Even big companies find it hard to hang onto more than one or twochief executive contenders for long for very obvious reasons,” says HRconsultant Paul Kearns. “When Jack Welch got the top job at GeneralElectric, two of the other contenders left shortly after he had won therace.” It is easy to underestimate internal candidates – working with managersmagnifies their flaws – and the converse is true, as you may not discover anexternal candidate’s flaws until it is too late. Before your directors make up their minds, you could mention Jim Collins’bestseller, Good To Great, in which he found that exceptional firms werefar more likely to recruit their bosses internally. Every company should occasionally look to the market for talent, if only towiden the managerial gene pool. But if you’re always asking a headhunter tofill the top slot, the fault may not lie with your new CEO, but with thecompany. 2 Don’t hire celebrity chief execs In the US, the proportion of externally recruited CEOs soared from 8 percent in the 1970s to 19 per cent in the 1990s. Yet studies suggest they don’tperform any better than bosses appointed from within – they’re just moreexpensive. The ‘larger than life’ chief executive is now out of fashion. They wereoften chosen for the wrong reasons: their CV was good enough to give the boardan alibi in the event of failure, their appointment would impress the investorsor – worst of all – they were deemed to be ‘charismatic’. The current trend is leaders with some humility, who walk into a new companyadmitting their level of ignorance. It is too early to write off the high-profile chief exec altogether. As LouGerstner proved when he took over the top slot at IBM in 1993, sometimes it isjust the kind of appointment a company needs to initiate change. And unlikesome of his peers, he couldn’t be accused of spending more time on a bookproposal than a business plan – he didn’t publish his bestseller, Who SaysElephants Can’t Dance?, until he had retired. 3 Take the right kind of risk Six years ago, Bruno Nespoli, the second-generation owner of a loss-makingItalian supermarket group Unes, did something that sounded very unwise indeed.He hired Pier Mario Vello as his new CEO – a former pharmaceutical companyexecutive, whose main claim to fame was writing several bestselling businessbooks. But Vello transformed Unes, hosting seminars to introduce a new set ofcorporate values that focused on creativity, optimism, loving the job (as wellas the customers) and tolerating frustration. Within five years, Unes hadbecome one of Italy’s most profitable food chains, and was sold to an Italianretailing magnate. Not every company wants to (or should) hire the new Tom Peters. Butsometimes, they should have the guts to be different. “What you see a lot of time in business – just like in footballmanagement – is companies recycling failure,” says Cooper. “Justbecause someone used to manage Manchester United or ICI, doesn’t mean theycould run your company. And if they’ve failed, you need to know why.” In other words, think twice if you are about to hire a candidate such asBrian Staples – the 56-year-old chief executive who has left two troubledcompanies (private finance initiative company Amey, and United Utilities) inthe past five years. 4 And then reduce the risk Secrecy inhibits the efficient operation of the market for CEOs. Someelement of cloak and dagger is probably inevitable (such appointments can,after all, affect share prices), but Cooper says it can also harm the new CEO’sprospects. “Even more important than the relationship between a chief exec and achairman is the relationship between a new CEO and your senior managers.Anything you can do to build that relationship is going to help your new bossand your company. So why not try work sampling? Or at least find a way for thenew chief executive to meet the team. That is more important than meeting thedirectors.” HR consultant Paul Kearns agrees: “You have to get the chemistry right– the relationship with key stakeholders should be tested before ifpossible.” And look out for other risk factors – one of the most obvious being theshift from private to public sector. Kearns says this shift can be particularlytricky. “Adam Crozier’s move from the Football Association to the Royal Mailseems a big gamble. He has no experience of running large public sectororganisations with a bad industrial relations history.” While Crozier learned a few lessons about the public sector’s unique wayswhile running the country’s most visible sporting body, other captains ofindustry might be more complacent. Cooper says: “Every private sector manager believes they could run thepublic sector more efficiently, yet that confidence isn’t always supported bythe facts.” The sorry tale of Lord MacLaurin is a case in point. For all his gravitasand good ideas, the man who revived Tesco and ensured a smooth succession, hassignally failed to revive cricket as the chairman of the English and WalesCricket Board. 5 Write a job description It sounds silly – everybody knows what a chief executive does, don’t they?Yes and no, says Cooper. “Look at the other positions on a board. The roles played by amarketing or a finance director are fairly well defined by a list of technicalfunctions. It sounds self-evident that the role of a chief executive is to leada company, but you need to define what kind of leadership you want.” If your job description says you are looking for a ‘proven leader’ who is‘decisive and action-orientated’, do yourself a favour: don’t even show it to apotential candidate, just chuck it in the bin. 6 Have a little faith Nobody knows quite why the RAC’s new chairman designate, Alan Bowkett, quitlast November after just four months in the job. But the fact that Sir TrevorChinn – the man who Bowkett was supposed to replace – stayed on for anotheryear while Bowkett was bedded in, could not have eased the succession. The simplest thing you can do to help a new chief executive, is to gentlyensure the old boss leaves the building – for good. In football, it is known as‘Sir Matt Busby syndrome’. Busby famously managed Manchester United when they became the first Englishclub to win the European Cup in 1968. But he then undermined much of the goodhe had done for the club by hanging around like the ghost of Banquo in MacBeth,while his successors struggled to cope with his legacy. It is one of football’smost famous and cautionary tales, and a common theme of corporate life. Don’tlet it happen to your company. Previous Article Next Article Related posts:No related photos. How to buy a CEOOn 4 Mar 2003 in Personnel Todaylast_img read more