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A company without a CEO is like a car without a driver
steering the car. In the same way, the CEO drives the growth of the company. It
is a catastrophe if a CEO is not at the helm. The most crucial decision any
board of Directors take is to select a new CEO. Nothing can help an
organization to succeed if a wrong person is hired for the post of CEO, yet we
see boards selecting people who are just not right for the post. There are some
boards who are great at hiring company leaders while others struggle. It is
mainly because of judgments and expertise of one or two of its directors.

There is no right or wrong way of leading a company. It is
subjective to each one of us. The leadership style might work in favour of one
company, the same style might not suit some another company. Leadership styles
are a personal reflection of each individual leader. They perfectly describe a
person’s inner genius.

To select the right person as the company leader, rigorous
succession planning is needed. The board should have a few names in mind in
case of a sudden succession crisis. They
should be very clear about the essential qualities needed, understand which
candidate is the best fit and allow some imperfections in the final candidate
selected. The most difficult part of the selection process is when you must
choose between the last 2 or 3 shortlisted candidates. Here, the judgment of
the board plays a huge role. The CEO’s most important job is being “the pivot”
for the company. Therefore, directors take a lot
of time analyzing company’s current challenges and forecasting the changing
external environment. They read analyst reports, talk to insiders, and consult
outside experts to expand their thinking.

Sometimes a company requires the CEO to have experience
from two or more different industries. The director must find out which
experience out of them is the most important. Take the example of Apple, which
had high-end and higher priced products which consumers liked because of its
aesthetics and the ease of use. The CEO of Apple thus, had to highly innovate
and create a differentiating experience of Apple products for its customers.
Steve Jobs was very innovative and could perfectly identify the needs of the
customers. What if you get the pivot wrong? Consider
the example of a large Chinese real estate company. Its chairman was a
high-risk taker and had ambitions to grow the company quickly. He bought
massive amounts of land by borrowing aggressively and built apartments and
offices at a very fast pace, too fast for the market to absorb. Gradually, the
company was on the suffering end of the business. The quality started slipping,
inventory started to pile up, and the cash flows were on the negative side of
the quadrant. When he started his search for a CEO, he remained focused only on
executing his growth vision. He raised substantial funds from abroad and was preparing the company for an IPO
in no time. He hired an experienced leader as his CEO with great contacts in
Hong Kong who promised to raise the necessary money and set the firm for the
public offering. A few months later the
new CEO could not get the required capital and thus had to be sacked. Now the
chairman realized that the company needed someone who could sell off the
inventories, cut cost and make profits with the existing model.

Keeping an open mind is very important when finalizing who
will be at the pivot. The selection group of directors must sometimes back off
their longtime favourites and consider
everyone equally in order to avoid having a new deserving talent. Those
psychological bonds are hard to break. Directors should be willing to look at
leaders a few levels below the CEO to get the right fit. Many boards use
head-hunters to add a few external candidates to the final list, if only for
the sake of due diligence. Great selectors don’t assume an insider or an outsider as the best source neither do they get
heavily influenced by the candidate’s
past profile of having worked in great companies. Sometimes it’s assumed that
leaders must report directly to the CEO to be in the spotlight. In this digital
age, many years of experience probably matters less than they once did a few
years back, and they could even be an impediment to necessary change. There are
many examples of business leaders under the age of 35 who have done
exceptionally well as a CEO and taken the company to a new level, from Michael Dell to Mark Zuckerberg and Larry Page. Frank
D’Souza, of Cognizant, was 38 when he was
named its CEO.

Another technique used is to divide the selection committee
into two teams, each taking interview of the candidate for about an hour and
then discussing him with the other team. The bigger the number of members in
the team, more is the chaos. Then finally they may reject all potential candidates
and select a completely unexpected person. Nowadays the selection committee
also directly converse with people who know the candidate, check out his
activities on social media to know more
about him. It is important to know not only what the candidate has done in his
lifetime but also under what conditions he has performed. Nowadays even the
investor’s advice is being asked before choosing the CEO. Sometimes a single
person cannot have multiple skill sets, so in this case, they go by the most dominant need for the company once that
need is met by the CEO, other needs can be compensated by hiring a strong CFO,
CMO and other top management people.

You should also keep in mind that as the incumbent CEO
nears retirement age, the conduct of some candidates inevitably and
understandably starts to change.

Choosing a CEO is the collective responsibility of all the
board members, owners as well as the investors, but more critical is to pick
the directors who will be in-charge of the process. If wrong people take
charge, the company will run into
difficulties. Frequently, the directors are former CEOs with proven business
expertise, strong values, and attitudes.
Other board members will also put forward their questions and comments, which
any good leader will be open to answering.

No matter who you
select, the final selection is neither risk-free nor predictable. It takes time
for the results to be seen, he must be given ample time to adjust to the new
company with loads of responsibilities. By focusing on the pivot, not playing
favouritism, and going deep in their understanding of candidates’ strengths and
weakness, those driving the decision can avoid common pitfalls and improve the
chances of selecting a great CEO.

 

 

Leadership
Theory

 

Trait Theory:

 

This theory emphasizes on the assumption that people are
either born with the qualities that incline them towards leadership roles like
that of a CEO or are not born with the required qualities. Certain inherited
qualities such as personality and cognitive ability differentiate an effective
leader from a not so effective leader. There have been numerous studies to
determine the most important leadership traits. The results found that
intelligence, sociability and determination were some of the key ingredients
found in effective leaders such as a CEO.

 

Situation Theory:

 

This theory suggests that different situations require
different styles of leadership. That is, to be effective in
leadership requires the ability to adapt or adjust one’s style to the
circumstances of the situation. The primary factors that determine how to adapt
are an assessment of the competence and commitment of a
leaders followers. The assessment of these factors determines if a leader
should use a more directive or supportive style.

 

Transformational Theory:

 

This theory states that leadership is the process by which
a person engages with others and can create a
connection that results in increased motivation and morality in both
followers and leaders. The key in transformational leadership is for the leader
to be attentive to the needs and motives of followers to
help them reach their maximum potential. In addition to this,
transformational leadership typically describes how leaders can initiate,
develop, and implement important changes in an organization.