It’s well known that the primary governance roles of a Board of Directors include recruiting, retaining, supporting, evaluating, and ensuring the smooth succession of their chosen CEOs. This is a key part of each board’s mandate to ensure the long-term success and sustainability of their companies. Many boards handle all aspects of that function quite well. Unfortunately, even more don’t. Why? There are as many answers to that question as there are boards. However, one reason that comes to the surface frequently is that, dealing with strong personalities – and what CEO (or board member) doesn’t have one – can be messy, sometimes painful, rarely a smooth straight line, and exhausting work. Board members, and people in general, would rather work on a straight path and don’t like pain.
Unfortunately, during times of uncertainty, when risks multiply, the tendency of boards (and sadly, for that matter, most of us) is to put our heads down and work towards the status quo, avoiding any decision to bring in new leadership who might know how best to lead the company through tough times. Judging from the last few years, and unless a CEO was front page news, the CEO slot could be considered one of the few places where you could consider your job fairly “safe.”
Now that economists are in agreement that we’re slowly coming out of a long global recession, one may start to see more boards willing to step out of their “toe the line” mode of operation and shift out their underperforming CEOs in hopes of revitalizing innovation and forward-looking performance with new leaders. In 2012, 15% of the world’s largest companies changed out their CEOs. Hope for the economy is still fragile though, and in the first half of 2013, CEO change has been running neck-and-neck with 2012. If things start to heat up, predictions are that C-Suite shifts will accelerate as external pressures mount. The same is also true of board turnover. When economies become more stable and the business environment more predictable, boards and investors are more apt to support and even aggressively push for changes in leadership.
Risks always involve some level of uncertainty. Turning over the reins of a company to a new CEO and/or new board member(s) creates a whole new set of dynamics and risks. However,, “No pain; no gain,” because with those risks comes a whole new set of opportunities for rewards. And rewards that arise from overcoming challenging situations are usually much sweeter. Unless of course, you’ve staked your credibility, and the company’s welfare, on the wrong choice for CEO or board member.
Unfortunately, this preasure to change addes to the reasons why many boards do not do well in either their selection of a new CEO or establishing a successful succession process. Often, both inside and external candidates are chosen on the basis of past performance, but past performance is no guarantee of future success. Instead, shouldn’t boards focus on what is going wrong or could be better, and on finding those candidates with the best understanding, vision, answers, ability to adjust and execute on the strategy?
Ultimately, when things are not going as they should, it is the board’s responsibility to determine why.
Is the CEO not doing what is expected? Is the board not clear or realistic in what it expects? Is it the management team? Is it the relationship between management and the board? Is the board not functioning or understanding the company’s place in the industry and market? Without these answers, it will be nearly impossible (unless lucky) to make those changes in the company that create positive changes in performance.