My last post focused on advice from Anand Eswaran, an executive with a very successful career at several huge tech companies. The topic was what a first-time CEO has to unlearn. Eswaran also had some advice for the board of directors regarding how to select a first-time CEO that I thought was very powerful. His guidance is to screen for:
• Curiosity and problem solving ahead of specific management experience
• Range over altitude. Linear careers give you altitude, nonlinear ones give you range.
• Evidence that the candidate can make the shift from operator to decider
• A spec written for where the company is going, not where it has been.
• A spec written for where the company is going, not where it has been.
The assumption is that the board is seeking a replacement CEO to lead an existing company. I have often said no board hires a new CEO unless the company really needs one, so this is not a snap decision. The outgoing CEO may simply be retiring, or they may have decided to leave the company or step down on their own for some reason. Sometimes, the board’s decision to find a new CEO is driven by bad behavior (‘for cause’), but more likely it was driven by under-performance or failure of the company to execute as expected. Frequently, in the board’s opinion, the demands of the company have exceeded the capabilities of the CEO.
The first step should be to attempt to help the existing CEO to succeed. This could be in the form of a board member taking a more active role, hiring a coach, or encouraging the CEO to participate in a leadership program or CEO peer group. Any of these steps will be much less disruptive than replacing the CEO, but as with any personnel decision, the board has to be convinced the process can succeed, and not just postponing the inevitable. If the consensus is that it is a lost cause, then the board needs to be decisive about taking the hard step of replacing the CEO. This is a major decision not to be taken lightly.
Finding the right person to lead a company is a tricky process. If the company is doing well and has a bright future ahead, a CEO search will surface qualified, experienced CEOs looking for their next gig. The real challenge is when the ‘baby is ugly,’ but has good bones to build upon. This is when qualified experienced people may turn away, and the board has to consider a first-timer who is eager for a CEO position, and excited about the opportunity. Eswaran has provided good advice about how to screen for the best candidate among a cadre of less than experienced potentials. Geoff Smart, author of the book "Who: The A Method for Hiring,” defines an A candidate as someone with at least a 90% chance of achieving a specific outcome that only the top 10% of candidates in the relevant talent pool could achieve. An ‘A’ candidate is not a universally outstanding person (i.e. the experienced CEO). It is a person in the available talent pool who is willing to take the job at this company, for the compensation the company is willing to pay. The analogy is a college basketball team looking for an A player. They may want Lebron James, but they cannot afford him and he will not take the job, so they have to consider the pool of players who will.
Eswaran’s first criteria is curiosity and problem solving. I would position this a bit differently. The candidate has to be self-aware of their shortcomings, and eager to learn. A first-timer who thinks they know it all is bound to fail. Until you have walked in the CEO shoes, it is hard to imagine the challenge, and even experienced CEOs need to stay curious and on a path of continuous learning. Problem solving skills are definitely important, particularly if the company is in some form of trouble. The new CEO will be thrown into the turmoil and expected to figure out a path forward.
The concept of Range over Altitude in most situations is brilliant. Linear careers create expertise in one dimension. A candidate that has a long career in one discipline such as sales or engineering will tend to be like the little boy with a hammer —all problems will look like a nail. An effective CEO has to have a grasp of all the functional areas of the business. They will not need to be masters in all areas, but they also cannot be naive. This is where screening for a candidate with curiosity and eagerness to learn intersects with range. A candidate who knows what they do not know, and is eager to fill in the gaps is ideal for building ‘range’ where it may be missing.
The biggest challenge for a first-time CEO is to shift from operator to decider. I concur with Eswaran that the first-timers have to move out of the operator role where they basically try to do everything themself. However, I differ a bit from Eswaran’s view regarding the shift to ‘decider.’ In my experience, first-timers have a strong bias to be the center of the universe and make all decisions. They often smother their new team. What they have to learn is to distinguish between the decisions they alone must make, and all of the other decisions they need to rely upon their team to make. Their new role is to lead and nurture, and build trust in their team to get the job done. They are not the sole operator anymore.
Lastly, Eswaran suggests the board needs to write the spec for where the company is going, not where it has been. Too often, the board returns to the original business plan and strategy, and they create a spec for a candidate to lead the company back to the original trajectory it was pursuing. Candidates for the new CEO position need to be gauged on their ability to start where the company is, and take it to where it can realistically go next, and that may not be a return to the original trajectory. The board has to recognize the company is where it is, and look for a candidate suited to take the current assets and create a successful business. The screen should be to find the individual with the intellectual capacity, curiosity, and balanced leadership skills to move the business forward and execute a new strategy.
Hiring a first-time CEO with the right balance of capabilities and cultural fit for the job is fraught with challenges for the board. Eswaran provides a useful set of guidelines, but the most important element is for all of the members of the board to be on the same page regarding the current state of the company, where they expect the company to go, and how they will measure success for the new CEO.