Boards And The CEO Search Firm
By Gary Kaplan© THE CORPORATE BOARD. January/February 2000.
With today's faster CEO turnover and the higher stakes demanded for success, boards must cast a wider net for top executive talent. More boards are enlisting executive search firms in their hunt for the perfect CEO. However, unless you carefully define what you really need in a CEO, even the best executive search is likely to disappoint.
The test of how well a board of directors has planned an orderly CEO succession comes when theory is put into practice. The search for your company's next CEO and all its ramifications presents a major challenge to the board.
When facing a CEO search, the wise board takes a keen assessment of the company, its senior management, its stakeholders and its future. A CEO search and its outcome will have enormous impact on the future of the company in the years ahead. Given the significant implications of a search, the board is in a better position to make an informed, successful choice if armed with good information.
As a matter of course in its oversight responsibility for the company, CEO succession should be an integral part of a board of directors' ongoing agenda. Some boards examine the issue annually; others more often.
Even if the board or the CEO have indicated an expected length for executive tenure, events will alter even the best-laid plans. The company may face new domestic or international competitive challenges; a takeover, merger or acquisition; entry into a new business line or geographic area; a leap into e-commerce; or a planned or unexpected change of business direction. Any of these would have an impact on evaluating current leadership's ability to meet those challenges.
Unexpected misfortunes may also strike your current CEO, and should be anticipated and included in succession discussions. CEOs become ill, die without warning, get a better offer, opt out through early retirement or get hit by the proverbial truck. A planned response to the "what if" scenarios creates valuable emergency options.
Whatever the circumstances, a CEO opening is an excellent opportunity for the board to examine or revisit the company's in-house management strengths in light of its potential challenges of growth. Dealing with CEO succession means looking at the bigger picture by examining the company's current and potential CEO executive capabilities in deciding whether to promote from within or look farther afield.
A search firm can help you conduct an internal management audit for inside CEO candidates, as well as extending your reach on the outside.
A board needs to review their executives as assets to be managed wisely. Investing in senior executive education, expanding skills and responsibilities, and internal promotions help retain key talent. Measuring and evaluating current and potential executives, with a variety of corporate financial and performance issues provides a solid portrait of what talent is available and what may be required. Developing this "bench strength" also positions the company as an attractive place to work among the next generation of executives.
In beginning a CEO search, boards may seek professional assistance from a skilled executive search firm. This firm can help the board conduct an internal management audit by assessing inside candidates' strengths and appropriateness for promotion feasibility to the CEO post. These internal candidates may be weighed against a pool of outside prospects.
Further, the reach of an executive search firm will exceed the board's circle of known individuals helping you identify other highly desirable candidates. A professional search firm can stimulate interest in this opportunity among candidates who have been approached dozens of times before. Some boards engage a CEO search firm for its very cachet. A call from a search firm is seen as a serious, systematic approach to the process and thus adds credibility to the opportunity.
Boards should view the search firm as their partner. A smaller firm has fewer "off limits" CEO candidates, and may offer greater flexibility.
Throughout the CEO search process, the firm brings objectivity in its evaluation of both internal and external talent. An effective search firm shields its clients' searches with confidentiality, a key issue among boards, investors, employees, stakeholders, and no less to the candidates themselves.
Boards should view the search firm as their collaborative partner. In its role of representing the board, the firm acts on behalf of its client interests, first and foremost. This basic ethical consideration drives the entire process. In a highly visible marketplace, confidentiality, objectivity and selectivity in light of the board and the company's best interests are valuable.
The choice of your executive search firm is central to a successful outcome. The selection process may begin with identifying and calling in search firms known to the board, yet should not end there. A wider field beyond the "brand names" in executive search exists, each with its own approaches, practice areas and reach. The large executive search firms are hindered by the industry's "off-limits" rule, where they may not recruit from their client-companies-the very companies which may already employ your next CEO. As a general rule, the larger the search firm, the greater likelihood they will be restricted by these off-limits rules.
Smaller companies, especially those with lengthy experience in diversified fields, have built-in flexibility in searching the universe of potential candidates and thus should be included in the short list. Further, the retained executive search firm, with its fees and expenses assured, has the freedom and objectivity, as well as the mandate, to produce exceptional candidates.
Since CEO searches tend to be highly sensitive, the ultimate choice of a search firm depends on the board's evaluation of its ethics, integrity, competence and the value it brings to the search process, along with an important chemistry that generates trust and confidence. Look for the firm that provides more than bodies. A high-quality executive recruiter provides knowledgeable guidance through the entire search process.
Prior to the formal search. For most boards, the usual practice is to delegate the initial responsibility of a CEO search to either the compensation or a specially formed search committee. Each director's input in establishing the parameters of the position, as well as highlighting good candidates is valuable. The chief human resources executive may also be asked in to support their efforts.
A search firm should be brought into the process early on to help define criteria for the position and formulate appropriate pay guidelines. Executive search firms have both a broad and an in-depth view of the executive market's pulse. While a CEO search may be a once-in-a-lifetime event for the board, search firms literally do this every day. Their resources complement in-house capabilities and expand any limitations.
At the onset of the search engagement, a skilled recruiter helps the board evaluate internal and industry-wide executive quality. As some directors are themselves from outside the company's industry, this background can prove to be useful in measuring and comparing current talent. A board search committee may be able to direct the recruiter to appropriate talent in a non-related industry.
The survey will also include appropriate compensation packages. In situations where a CEO has not been replaced over a length of time, a comparative analysis of going rates is beneficial to the board in structuring its offer. The recruiter can also suggest creative ways to structure the package to increase appeal among very desirable (and sought after) candidates.
Part of the task of the search committee and the recruiter is to help the board develop specifications for the CEO position, based on the company's current and projected business environment, its expectations, and performance objectives.
The board should be able to articulate the company's culture, working relationships among its current executives, its relationship with a CEO and other factors that influence the specifications. In some companies, the CEO is expected to lead the board; in others, advise or follow. These differences are important in developing a clear set of specifications.
A candid, clear expression of the board's CEO expectations before the first candidate is identified will save a lot of grief down the road.
This is no small job, because these specifications get at what the board really wants. For instance, while a new CEO often takes 18 months to two years to become fully effective, a three to six month turnaround may be a board's unspoken expectation. A candid and clear expression of the board's CEO expectations before the first candidate is identified will benefit everyone, and saves a lot of grief down the road.
During the search. Once the actual search is in progress, the board or its designated committee members should expect periodic, timely reports that show intensive efforts on their behalf. The report includes a review of candidates contacted, responses and any new information. During this time, the search firm researches, surveys and selects the best candidates, pre-screens them according to the board's specifications and other factors (qualifications, references and reputation).
The search firm also qualifies CEO candidates through discussions with each to uncover latent issues which may present problems further on in the process. Chief executive candidates may seem eager to take on the task initially. Later, though, they discover a partner's objections, or reconsider the family, relocation issues, or the expanded duties and company and industry prospects which may cause a rejection of an offer. Early and thorough candidate discovery minimizes the risk of a fruitless pursuit.
Candidate presentation. Before presenting candidates, the search committee along with the recruiter reviews and discusses the short list with the full board to gain feedback and consensus for the next step.
The selected candidates are evaluated by the board in a series of formal candidate presentations and informal meetings. These multiple encounters between the board and the candidates are essential for developing a mutual understanding and common ground. The "intangibles"-chemistry, attitude, bearing, perceptions and, ultimately, a meeting of the minds-improve the odds of making a successful choice.
Warning: At this point, the "halo effect" may take hold. Impressed by one or more of the candidates, the board may make too-optimistic assumptions about a candidate's fit with the corporate culture, what each perceive as challenges (and those that are not), the vision and direction to be taken and the intestinal fortitude needed for the difficult job ahead. Consulting with the recruiter, who has had daily experience through this stage, is advisable to make certain that board perceptions mesh with candidate reality and corporate cultural fit-without the rose-colored glasses.
The offer. Prior to an ultimate decision, the board may want to consider other pertinent issues such as the role of the outgoing CEO, if any-an ad hoc advisor, a seat on the board, a consultancy, or a clean break?
The board should make an offer to the winning candidate in person rather than through a third party. A personal offer respects the candidate's position and begins to establish a positive working relationship.
Transition. Whether a board ultimately chooses a person from within the company or without, recognize the impact of the choice among the company's other executives and stakeholders. As rumors circulate around the water cooler, any search or pending appointment of a new CEO will cause a certain percentage of executives to leave as they sense their career clocks ticking down. By assuring them of their value and contributions, the company has a good chance of retaining them during a transition.
The newly appointed CEO should be a part of the introduction plan and instrumental in implementing it. The board has charged the new CEO with the responsibility of leading the company's future, and he or she must be allowed enough space to carry it out from the beginning. This first test of a new CEO includes the plan to bring the company's senior executives and employees on board, gain investor approval, and customer support in buying into the vision and direction.
Although the assumption is that the new CEO was the best choice, recent corporate history of new chiefs indicates their failure rate is high. To aid a smooth transition, providing the new CEO with an executive coach helps clarify and reconcile any mistaken perceptions and, if needed, reconfirms the CEO's understandings of the board's expectations.
A step up to a CEO position also changes everything for the person selected. Without collegial protection and alone in the corner office, a novice CEO can benefit from a coach as sounding board. It can be worth the small investment of time and expense to protect the success of the much bigger investment already made in the CEO search.
The CEO search is fraught with peril, as the experiences of several major corporations in recent years will show. Start your search with a clear-headed notion of what is involved, including all of the implications, and try to foresee the unforeseen. Follow through be being attentive and responsive to the demands-and stress-that a CEO search entails.
A job well done does more than replace a CEO successfully; it speaks well of the board responsible for shepherding the company into the years ahead.
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Coaching The New CEO
Hire an Executive Counselor
The new CEO, with the assistance of the coach, should draw up an appointment charter to present to the board for confirmation. This document sums up and clarifies the understandings hammered out during the discussions between the winning candidate and the board. "The appointment charter also clearly communicates what is to be accomplished in specified time frames and in which cases 'forgiveness is not to be granted'," says Dr. Elliott Ross of Manchester Consulting in Philadelphia. "There should be no surprises." From his experience, an executive coach is most effective when brought in from the start date to up to three months, an optimal time period when the new CEO is translating his or her fact-finding evaluation into action. The executive coach gives the new CEO an effective mechanism for learning the job quickly by helping him or her analyze the situation and any gaps that may exist in personality and personal leadership style. "Using a coach smoothes the path in developing the working relationships with the board and among senior executives when a new CEO takes office," advises Dr. Ross. "Even when the board and the new CEO are in complete agreement, there may be issues among senior management, particularly if one of them was not chosen for the position." This preventative action can also help an internal hire lead the change expected in company direction. "Wherever the company is now, the coach assists the CEO in getting everyone working as a team in bringing about change." Above all, the board must make it clear that the relationship between the executive coach and the CEO is held in strictest confidence. "The feedback goes to the CEO, not to the board." |
