Hiring successful CEOs
The most critical hiring decision any business can make is selecting the best possible CEO. Unfortunately, many of us will have seen the harm done by appointing the wrong person for the job. The CEO is the most crucial position in the company and, according to McKinsey, is responsible for almost half of a company's performance. But, of course, it's tough at the top. A staggering 40% of newly appointed CEOs fail to live up to expectations in their first 18 months at the job. So what does make some CEOs more effective than others, and how should boards choose the best person for the job?
Perhaps our first question should be what do CEOs actually do; not an easy question to answer. CEOs play a significant role in corporate strategy, organisational alignment, engaging with the board, dealing with external stakeholders, and team leadership while also managing their personal time and energy. That is a lot of balls to juggle. A good CEO will need a special skill set, a powerful personality, and oodles of experience with preferably a strong track record to negotiate these effectively. Note that a strong track record doesn't mean a string of hits and no misses; many of the best CEOs in the world have failed on occasion. But those that rise from their failures and, Phoenix-like, learn from their mistakes. A track record as a CEO with a reputation for raising shareholder value may be less critical than generally thought; many successful CEOs are new to the job.
So, let's take a look at just some of the qualities we should seek in an ideal CEO candidate. Naturally, the fine detail will vary between organisations. For example, the CEO of a start-up will need a significantly different mindset from that of the CEO of a large public company. However, these qualities generally apply to CEOs in every sector, including public and private companies, public, not-for-profit organisations, and charities.
Strategic leadership and vision
An effective CEO will ultimately establish the direction for the company in a world of limited knowledge and strategic uncertainty. To achieve this, they must have the vision to set out where the company should aim to be in five or ten or fifteen years. To do this realistically, they must have a deep understanding of the sector, the company, the business, opportunities for growth, stakeholder aspirations, and the constantly changing economic landscape.
In terms of strategic leadership, the CEO's role is to steer the company in the right direction to achieve that vision. CEO's should be both bold and measured in developing the strategy, knowing when to act and when to hold back. CEO's appointed from outside tend to be bolder than internal appointees.
People leadership and management
CEO's lead the people who are part of the business, and the role has never been more challenging than the recent times of the Covid-19 pandemic, certainly not since World War II. The pandemic has forced CEOs to lead in different ways than before, and many have done an excellent job. Thus, a good CEO must be flexible in their approach and be willing to move in different directions as the changing environment demands. In addition, they must be supportive when support is needed and firm when the situation demands it.
Great CEOs are skilled at building outstanding leadership teams. However, it takes more than simply bringing together talented senior managers. A newly appointed CEO must deal with managers who are set in their ways and unwilling or unable to move with the flow or are simply stale. Structuring and motivating the leadership team is critical to the company's future.
An additional challenge for a CEO is matching the right people for the right jobs. But, again, the aim should be to create the maximum value and avoid over-tasking key performers, which can reflect an inability to trust other people to do the jobs satisfactorily.
Excellent board management skills are also essential. The board is tasked to create long-term value on behalf of the shareholders and should be independent. However, a good CEO can maximise the board's effectiveness and maintain relations between the board and management.
CEOs also play a critical role in shaping company culture, whether they do it intentionally or not. Although the CEO is just a single individual, their influence on the culture can be far-reaching. The changes they make, the policies they create, and the behaviours they model all influence the way others in the organisation behave, and culture is essentially behaviour. From communicating the big-picture vision to ensuring organisational values are present in the day-to-day details, CEOs must be deliberate about their behaviours to ensure that they support the company culture.
Culture should be a high priority when hiring new employees including the CEO and promoting existing ones. The CEO like all new hires should be able to fit into, enhance, and if required, should be able to disrupt the organisation’s culture to become future ready amid the changing industry landscape.
Traditionally companies seek to hire CEOs with a track record of increasing shareholder value in other organisations. But is being successful as a CEO in one organisation a guarantee that the person will perform in an entirely different environment? In fact, there are many high profile examples of success preceding failure.
There is also evidence that previous success as a CEO is relatively unimportant. For example, data from the United States suggests that around 80% of the CEOs of Fortune 500 companies are doing the job for the first time. Clearly, they appear to be stepping up to the mark, given that their new role is more extensive in scope and more complex than their previous roles. So perhaps it is more important to focus on a candidate's ability to grow into the new role rather than on their history of driving shareholder value.
There is probably no more important decision a business can make than choosing who will be the leader. Executive qualities such as strategic leadership, vision, people leadership, and excellent management skills are vital. A track record is also important but perhaps not a crucial as the candidate's ability to rise to the challenge of the role and lead the company forward.