A company without a CEO is like a car without a driversteering the car. In the same way, the CEO drives the growth of the company. Itis a catastrophe if a CEO is not at the helm. The most crucial decision anyboard of Directors take is to select a new CEO. Nothing can help anorganization to succeed if a wrong person is hired for the post of CEO, yet wesee boards selecting people who are just not right for the post. There are someboards who are great at hiring company leaders while others struggle.
It ismainly because of judgments and expertise of one or two of its directors.There is no right or wrong way of leading a company. It issubjective to each one of us. The leadership style might work in favour of onecompany, the same style might not suit some another company. Leadership stylesare a personal reflection of each individual leader. They perfectly describe aperson’s inner genius.To select the right person as the company leader, rigoroussuccession planning is needed. The board should have a few names in mind incase of a sudden succession crisis.
Theyshould be very clear about the essential qualities needed, understand whichcandidate is the best fit and allow some imperfections in the final candidateselected. The most difficult part of the selection process is when you mustchoose between the last 2 or 3 shortlisted candidates. Here, the judgment ofthe board plays a huge role. The CEO’s most important job is being “the pivot”for the company. Therefore, directors take a lotof time analyzing company’s current challenges and forecasting the changingexternal environment. They read analyst reports, talk to insiders, and consultoutside experts to expand their thinking.Sometimes a company requires the CEO to have experiencefrom two or more different industries. The director must find out whichexperience out of them is the most important.
Take the example of Apple, whichhad high-end and higher priced products which consumers liked because of itsaesthetics and the ease of use. The CEO of Apple thus, had to highly innovateand create a differentiating experience of Apple products for its customers.Steve Jobs was very innovative and could perfectly identify the needs of thecustomers. What if you get the pivot wrong? Considerthe example of a large Chinese real estate company. Its chairman was ahigh-risk taker and had ambitions to grow the company quickly. He boughtmassive amounts of land by borrowing aggressively and built apartments andoffices at a very fast pace, too fast for the market to absorb. Gradually, thecompany 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 ofthe quadrant.
When he started his search for a CEO, he remained focused only onexecuting his growth vision. He raised substantial funds from abroad and was preparing the company for an IPOin no time. He hired an experienced leader as his CEO with great contacts inHong Kong who promised to raise the necessary money and set the firm for thepublic offering. A few months later thenew CEO could not get the required capital and thus had to be sacked. Now thechairman realized that the company needed someone who could sell off theinventories, cut cost and make profits with the existing model.Keeping an open mind is very important when finalizing whowill be at the pivot. The selection group of directors must sometimes back offtheir longtime favourites and considereveryone equally in order to avoid having a new deserving talent. Thosepsychological bonds are hard to break.
Directors should be willing to look atleaders a few levels below the CEO to get the right fit. Many boards usehead-hunters to add a few external candidates to the final list, if only forthe sake of due diligence. Great selectors don’t assume an insider or an outsider as the best source neither do they getheavily influenced by the candidate’spast profile of having worked in great companies. Sometimes it’s assumed thatleaders must report directly to the CEO to be in the spotlight.
In this digitalage, many years of experience probably matters less than they once did a fewyears back, and they could even be an impediment to necessary change. There aremany examples of business leaders under the age of 35 who have doneexceptionally well as a CEO and taken the company to a new level, from Michael Dell to Mark Zuckerberg and Larry Page. FrankD’Souza, of Cognizant, was 38 when he wasnamed its CEO.Another technique used is to divide the selection committeeinto two teams, each taking interview of the candidate for about an hour andthen discussing him with the other team. The bigger the number of members inthe team, more is the chaos. Then finally they may reject all potential candidatesand select a completely unexpected person. Nowadays the selection committeealso directly converse with people who know the candidate, check out hisactivities on social media to know moreabout him.
It is important to know not only what the candidate has done in hislifetime but also under what conditions he has performed. Nowadays even theinvestor’s advice is being asked before choosing the CEO. Sometimes a singleperson cannot have multiple skill sets, so in this case, they go by the most dominant need for the company once thatneed 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 CEOnears retirement age, the conduct of some candidates inevitably andunderstandably starts to change.Choosing a CEO is the collective responsibility of all theboard members, owners as well as the investors, but more critical is to pickthe directors who will be in-charge of the process. If wrong people takecharge, the company will run intodifficulties. Frequently, the directors are former CEOs with proven businessexpertise, strong values, and attitudes.Other board members will also put forward their questions and comments, whichany good leader will be open to answering.No matter who youselect, the final selection is neither risk-free nor predictable. It takes timefor the results to be seen, he must be given ample time to adjust to the newcompany with loads of responsibilities. By focusing on the pivot, not playingfavouritism, and going deep in their understanding of candidates’ strengths andweakness, those driving the decision can avoid common pitfalls and improve thechances of selecting a great CEO.
LeadershipTheory Trait Theory: This theory emphasizes on the assumption that people areeither born with the qualities that incline them towards leadership roles likethat of a CEO or are not born with the required qualities. Certain inheritedqualities such as personality and cognitive ability differentiate an effectiveleader from a not so effective leader. There have been numerous studies todetermine the most important leadership traits. The results found thatintelligence, sociability and determination were some of the key ingredientsfound in effective leaders such as a CEO.
Situation Theory: This theory suggests that different situations requiredifferent styles of leadership. That is, to be effective inleadership requires the ability to adapt or adjust one’s style to thecircumstances of the situation. The primary factors that determine how to adaptare an assessment of the competence and commitment of aleaders followers. The assessment of these factors determines if a leadershould use a more directive or supportive style.
Transformational Theory: This theory states that leadership is the process by whicha person engages with others and can create aconnection that results in increased motivation and morality in bothfollowers and leaders. The key in transformational leadership is for the leaderto be attentive to the needs and motives of followers tohelp 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.