Companies Need To Do More To Help New CEOs Succeed
A succession of corporate scandals and recessions, culminating in the financial crisis that began in 2008, has led to great attention on both sides of the Atlantic to the running of the boards of publicly-quoted companies.
|Monday, July 27, 2015|
By Roger Trapp, Contributor, Forbes.com
A succession of corporate scandals and recessions, culminating in the financial crisis that began in 2008, has led to great attention on both sides of the Atlantic to the running of the boards of publicly-quoted companies. Just how successful such efforts have been depends on your point of view. But in concentrating on the day-to-day activities regulators, commentators and board members themselves have largely ignored an increasingly important aspect of corporate life – the failure of an incoming chief executive. Dan Ciampa and David L. Dotlich, authors of the recent book Transitions at the Top (Wiley), quote various academic studies as indicating that the problem has escalated in recent years. The turnover range for chief executives of large North American corporations hovered at around 10% to 11% in the mid to late 1990s and then rose rapidly to an average of 14% between 2000 and 2007, they report. Moreover, while only 269 companies reporting to the SEC had to manage a CEO transition in 1999, by 2008 the figure was 1,484. The effects of all this turmoil are obviously significant – on the individuals concerned, the reputations of the companies involved and the bottom line. Ciampa and Dotlich quote more research indicating that the CEO departures add up a minimum loss of $14 billion a year in the United States alone.
Unsurprisingly, numbers like that have not gone entirely ignored. There are new rules requiring boards to develop succession plans that are available to shareholders, who – it is clear from news reports – have become increasingly vocal about CEO appointments. But this development does not appear to have translated into companies making better preparations for the arrival of new leaders. Indeed, as their book’s sub-title, “What Organizations Must Do to Make Sure New Leaders Succeed,” indicates, Ciampa and Dotlich firmly believe that much of the problem lies with the company rather than the individual. True, they point out that more research by Harvard Business School (described in an earlier book co-authored by Ciampa, Right from the Start) shows that leaders who fail within a couple of years of taking up the position make the same mistakes. These include failing to use the time wisely between accepting the position and starting work, not reading the political situation well enough to understand the relationships most important to their success, failing to understand the culture well enough or to manage it to follow their direction and failing to appreciate how willing the people now under their direction are to implement changes. But the importance of organizational failings cannot be dismissed lightly.
Using their extensive experience of consultancy and coaching, the authors have drawn up a list of success factors that boards need to bear in mind at times of transition.
Know when the transition is at a critical point: This requires using the knowledge gained of the process and being prepared and able to react in the best way. In particular, the people in the company involved in picking the new CEO need to understand that – relieved as they may be at achieving an outcome – the time between the candidate accepting the job and starting work is not the time to relax. It is the time to prepare.
As Ciampa and Dotlich point out, “New leaders as well as the company’s major players make the mistake of assuming the job begins when new leaders show up on the first day. In fact, the moment that they said ‘yes’ the next phase of their careers began.”