November 18, 2016
The importance of choosing the right CEO is critical, yet so many repeatedly choose wrong. Why are some boards adept at CEO selection while others struggle?
“Throughout the years I’ve noticed that great succession decisions were really driven by one or two directors, whose judgment and expertise the board relied on, and I’ve worked to distill their common approaches and ‘mental algorithms,'” Ram Charan, a business adviser to CEOs and corporate boards and the author of more than 20 books, wrote in the Harvard Business Review.
According to Mr. Charan, board members who consistently make great CEO selections do four things other boards don’t: They take painstaking care to clarify the essential qualities a successful candidate should posses; they keep an open mind about where the best candidate will come from; they seek a deep understanding of why one candidate is the best fit; they allow the chosen candidate to have imperfections. They also pay attention to who is doing the selecting.
Here is more detail on Mr. Charan’s recommended strategies.
1. Find the “pivot.” While boards should always maintain a viable pool of CEO candidates, when the moment of truth arrives, boards should be willing to set that list aside. Instead of focusing on names, they must first understand the current and future requirements of the role and identify the critical capabilities a candidate absolutely must possess. The result isn’t a “laundry list” of leadership traits, Mr. Charan wrote. Rather, it’s a strand of a few important capabilities that are interconnected and required for the new leader’s success. This knot of skills is what helps the board decide to turn from one candidate to another — the pivot.
However, arriving at this final list of critical skills and competencies is not a fast process, according to Mr. Charan. “Directors who choose the right CEOs do a lot of work before arriving at the pivot,” he wrote. “They take the time to fully understand the company’s current challenges and how the external context is changing. They read analyst reports, talk to insiders and consult outside experts to expand their thinking. They go both broader and deeper than board members typically do. They don’t dismiss complexities or contradictions; they cut through them and deduce what skills and capabilities are essential, iterating until they hit on the right combination.”
2. Keep an open mind. When it’s time to write the short list of candidates who could fit the pivot, board members who are skilled at CEO selection start with a clean slate, according to Mr. Charan. They know a company’s needs can shift suddenly, rendering their entire set of candidates and succession plan obsolete. They resist the attraction to longtime favorites and keep an open mind.
This is often difficult, as friendships and mentorships between board members and senior leaders within the organization often skew perceptions of their leadership capabilities. “I’ve seen directors form definite opinions about a person in their first encounter and never change their views, be it positive or negative, even in the face of lots of contradictory evidence,” wrote Mr. Charan. “I saw one director advocate for a particular individual who clearly lacked an important capability the board had agreed on, because he had been impressed by the sharpness of the person’s boardroom presentations early on.”
Directors must strive for objectivity as they review candidates and not assume an insider or an outsider is best equipped. Many boards enlist headhunters to add a few external candidates to their list, “if only for the sake of due diligence,” he wrote.
3. Find the right fit. When there are just a few candidates left on the list, the best CEO selectors look deeper than most to understand how well each candidate matches up against the pivot. They strive to find the best fit, not the best leader.
Sometimes, after the longer, more in-depth interviews, board members may discover the pivot list was missing a critical trait or capability. At that point, board members should not be afraid to reject all of the candidates and go back to the drawing board.
4. Be prepared for imperfections. The vetting process will expose candidates’ flaws and quirks, but savvy CEO selectors accept imperfections when they make the final decision. According to Mr. Charan, many CEOs with a strong background in strategy, planning or finance lack people and operating skills and visa versa. Sometimes these gaps can be filled easily, whether by enlisting a coach or hiring another executive to supplement their skills. If someone fits perfectly with the pivot but is deficient in a few areas, they could still become a great leader.
5. Select the right search leaders. Although choosing a CEO is the responsibility of the whole board, picking the directors who will lead the selection process is critical, according to Mr. Charan. “Steer toward those who have earned their colleagues’ trust and respect,” he wrote. “More often than not, they are committee or board chairs or lead directors already. Frequently, they’re former CEOs with proven business acumen and very strong values. Their leadership of the search emerges naturally, and their colleagues should welcome it.”
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