There are good and also unfortunate circumstances that make it necessary to hire a new CEO for an existing company. As companies transition from the entrepreneur/founder stage through the various stages of growth, there are several inflection points where it is valuable to pause and assess the leadership of the company. Often, the focus is on the executive team reporting to the CEO, and not necessarily the CEO. However, there are moments when it is necessary to assess the CEO’s capabilities and desires, and to determine if a change at the top will unleash corporate growth.
Some founders are self-aware and recognize when the company has grown beyond their capabilities, or when the job has changed enough that it is no longer enjoyable. We can put that in the category of a positive reason for a change. Also on the somewhat positive side, following a merger or acquisition there can only be one CEO, so one of the CEOs will either step down or out, making the ‘surviving’ CEO the new CEO for the new combined company. This is actually an important point to note. When you hire a new senior member to a team, you have a new team, and it will go through all of the formative stages before it settles into a productive operating pattern. Similarly, merging two businesses and selecting one CEO to run it all has the same disruptive effect. The entire company and culture will reshape into a new team, and it will require time and effort to achieve a smooth sailing organization again.
When the board decides the business is stuck or in trouble or just not executing successfully, that triggers the unfortunate circumstance when it becomes necessary to hire a new CEO. This is never an easy decision, and as board members, it is typically a last resort after other interventions have failed. Often, the organization has collectively been aware of the need for a change long before the board considers action. Most managers hire too fast and fire too slowly, and boards are no different. They generally take time convincing themselves that a change is appropriate, and reaching consensus about the spec for the new CEO. Meanwhile, despite their discomfort with change and the unknown, the employees frequently have a sense of ‘what took you so long’ when the board finally announces that there will be a new CEO.
From the board’s perspective, hiring too fast occurs when the sole focus is to select a candidate that checks all of the boxes for experience and skills and intelligence, but in the rush to make the change, the board fails to adequately grasp the personality of the organization and ensure a match between the temperament of the CEO candidate and the company. In a recent LinkedIN post, Tony Rehak's advice was that an “incoming CEO's first responsibility is to understand what created the value before deciding what needs to change.” More on the CEO side of that equation later, but it is also excellent advice for the board as well. The board needs to recognize the value in the organization and the culture and select a CEO that will nurture the good and correct the bad in a manner that does not break the company. Boards that are attuned to this often hire a skilled advisor to assess the psychological attributes of the company and the CEO candidates. When I was being hired for one of my CEO positions, I was asked to spend an entire day with such an advisor. They had previously met with numerous key people in the company and on the board, and they probed deeply into my internal thought processes and personality to produce a comprehensive assessment of my fit for the company. Initially, I was a bit offended or put off by the concept, but I grew to appreciate the thorough process and as a board member I have adopted a similar concept as a best practice.
Like the Hippocratic oath doctors take to ‘first, do no harm,’ an incoming CEO needs to follow Tony Rehak’s advice. In my career, I was always the guy hired to replace the existing CEO. Sometimes it was the founder, and other times I was the second or even third CEO hired. Board members all shared their perspectives on what needed to change in the company, but I focused on gaining my own perspective before blindly accepting their guidance. I followed my personal process of always questioning every premise before accepting it. In my experience, no company hires a new external CEO unless they really need one. Something is broken, and the board assumes a new CEO is the fix. The incoming CEO’s first job is to listen and learn and observe so that they can independently figure out what is broken and what is working. They need to turn over every rock and evaluate what is underneath it, before they start blindly making changes. There is an old adage that applies to a new CEO: “we have two ears and one mouth; use them in that proportion.”
One last note about boards deciding to change CEOs. There are great CEOs who are brilliant at fixing broken businesses and setting them on a positive path, but some businesses are just broken beyond repair. This is particularly the case when the investors have reached the limits of their ability or willingness to invest. The task for an incoming CEO is then similar to Apollo 13 where you have to fix the ship using only what is currently onboard, and typically that is not very much to work with. When the investors have backed away or shut the door on new capital, the paths to success become fairly limited. Several times, I rejected opportunities and told the hiring team that it was my opinion that they did not have a CEO problem, they had a business problem. There was no market, or the market was saturated with no room for a new undifferentiated competitor, or sometimes the product was hopelessly flawed with no runway to fix it. The existing CEO may have helped cause the problem, but the business was too far gone and there was not enough capital to fix the situation. In my opinion, changing CEOs would not achieve the results the board intended without a complete restart and the board making a significant capital investment and providing adequate time to turn the ship around. When a board decides to change CEOs, they also need to assess what it will require to fix the business, and if they have the will to do so. A new CEO alone is rarely enough. Time, or patience is usually the element that is in the shortest supply when investors have reached the decision to hire a new CEO. As a candidate for the job, you need to fully understand what you will be working with and make your own assessment of the likelihood of success.