April 2010                                                                                              Issue 2

BoardWorks International

 

 
 
 
 
Top Considerations in Making the Transition to a New Chief Executive
 

Considerations in Making the Transition to a New Chief Executive Organisations become less effective - sometimes spectacularly so - during the time it takes to make the transition from an outgoing chief executive to a new one. The lessons from experience are that the transition process can and should be managed with as much deliberation and care as the selection process itself.


From the board's perspective, it is likely that the transition process to a new chief executive will have at least three distinct phases. 
 
Phase 1: Speculation about the present chief executive's future
The first phase occurs when an organisation, for any reason, experiences speculation about the continuity of its leadership. Such speculation may be confined to an, as yet hesitant, expression of doubt at board level about the current chief executive's suitability, competence or commitment to the position. More widely and overtly, rumours might be rife throughout the organisation and its sector about the chief executive's grip on the role.  Such speculation inevitably weakens and diverts the organisation in some manner. Not only will key stakeholders inside and outside the organisation become progressively distracted and unsettled, the speculation may become self-fulfilling. Even when it is known that the existing chief executive is likely to retire but the timing is not yet clear, corporate equanimity is likely to be disturbed.
 
Phase 2: The chief executive's departure is announced/recruitment is underway
The second phase commences immediately the departure of the outgoing chief executive is announced. This introduces a period of considerable uncertainty. The board's attention is split between the performance of the person who still in the position and the selection of a new chief executive. Depending on the circumstances of the 'old' chief executive's departure, this may be stressful indeed. During this period the influence, authority and motivation of the outgoing chief executive gradually, if not rapidly, wanes. This 'lame duck' period will last until the 'old' chief executive departs. 
 
Amongst both staff and external stakeholders attention and interest is on when the announcement will be made and who will be the replacement. The timing is often very uncertain, even for the board. The flow-on effects can be significant. For example, the key remaining players in the executive team may, not unnaturally, begin to focus more on the politics of the situation and on positioning themselves for a run at the top job. Boards may notice significant changes in behaviour as senior executives who are not aspirants to the role worry about their own futures under new leadership.
 
If there is a gap between the departure of one chief executive and the arrival of the next, there may be the added complexity of the need to appoint an 'acting chief executive'.  This can have a lot of advantages. For example, it can buy time in the recruitment process. Also, through the eyes of an acting chief executive who is not a candidate for the position, the board can gain new insights into the organisation's dynamics and leadership needs. This can greatly assist in the selection of a new chief executive.
 
On the other hand, it can add a variety of other negative dynamics to the situation. For example, because the acting chief executive will not have to live with the consequences, boards are typically reluctant to give them a mandate to deal with difficult issues. Typically, therefore, the period of hiatus is an extended one and the organisation may begin to drift if not become stationary. The circumstances that led to the departure of the old chief executive may be greatly exacerbated even if appointing a new chief executive is seen as THE SOLUTION.
 
Phase 3: A new chief executive is in the seat
The third phase begins when a new chief executive accedes to the position. Typically, this phase may last for six months or more. This is the time it takes for a new chief executive, even an internal appointee, to assess the organisation, its people and its operating environment generally. This is the minimum amount of time it takes to build a relationship with, and gain the confidence of the board. Choosing and installing a successor, especially when the new chief executive comes from outside the organisation, puts a strain on the whole management team. During this time the organisation's senior executives are still wondering how they will work with their new boss and whether their jobs are safe.  It is not uncommon for the new chief executive's assessment to result in significant changes to the organisational structure and/or to the personnel in the leadership team.  Consequently, this phase may extend for an even longer period while the key changes are made and new people settle into their roles.
 
As a consequence of these three transition phases, the change from one chief executive to the next might easily, therefore, take at least 12 months and probably significantly longer. During this time the organisation is likely to experience at least an extended hiatus in its performance and possibly even a deterioration.
 
This transition does not just impact on board, management and staff. Other important stakeholders (e.g. owners/members, customers and suppliers, strategic partners etc.) can find the process similarly disruptive to their relationships with the organisation.


The prolonged duration and potentially negative impact of this transition process is something all boards should be conscious of if they seem to be faced with the need to make a change in chief executive. In an increasingly fast moving and uncertain operating environment most organisations simply cannot afford to risk substandard performance for this length of time. The damage can be substantial and the recovery - even with an outstanding new chief executive - long and slow. Readers are likely to be able to identify current examples of major listed companies in exactly this position.
 
Lessons?
Firstly, consider whether a change in chief executive is really necessary.  When boards are considering forcing a change in chief executive they should think long and hard about whether an investment in ensuring the current chief executive is successful might not be a better option.  This will frequently relate to various forms of professional development but an answer might also lie in the composition of both the senior executive team and the board itself.  No chief executive is ever the complete package.  A board's perceptions of its chief executive's effectiveness can often be changed dramatically by improving performance in other key executive roles. In respect of the board's composition, we have seen chief executives 'come back from the dead' when an antagonistic board member has been removed or an ineffective chair has been replaced.
 
Secondly, if there is to be a change, explicit effort should be made to speed up and smooth out each of the phases in the transition process.  While it will require much of the board and, in particular its chair, the transition process should be treated as a project to minimise the length and negative impact of the transition period.  Each step should be carefully planned and closely managed. 
 
When a change of executive leadership is unavoidable both the organisation and its new chief executive have much to gain from an effective and assisted transition process.  There is a range of track-tested processes available to help both organisations and individuals make successful (and more rapid) chief executive transitions. The purpose should also be to increase the likelihood that any further such transition will not be needed any time soon.


 

 
 

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BoardWorks International is a specialist governance effectiveness consultancy dedicated to assisting governing boards to provide effective strategic leadership to their enterprises and to fulfil their fiduciary and stewardship responsibilities to their stakeholders. It is also our aim to make 'board work' a satisfying and enjoyable experience for all who serve on or provide support to, governing boards.