It is the rare Chief Executive Officer (CEO) who gets to choose when they will leave an organisation. “Irreconcilable differences” with the Board and poor organisational performance are common reasons for terminating the employment of CEOs – recent research* suggests up to 55% of CEOs lose their jobs because of poor performance, with most being forced to leave in their first two years of employment.
An Important Board Duty
Recruitment of a CEO is one of the most important decisions a Board will make, and the process is usually an expensive exercise. Consider the amount of time invested, the impact on staff morale generally, possible reputational damage while the organisation goes through the change of CEO, and fees, such as recruitment consultancy and advertising. It’s essential that Boards “gets it right”, and hopefully enjoy the organisational benefits of longer-term stable leadership.
Be Clear on What is Expected
Before any other action is taken, the Board member leading the CEO recruitment process should ensure the Board establishes agreed expectations of the role before commencing the recruitment process. Any ambiguity or confusion over the role and/or responsibilities will have a negative impact on the chosen CEO’s accountability and measurement of their achievements and success.
The expected accountabilities for this position must be linked to the organisation’s mid-term strategy. Additionally, with the rapidly changing business environment, skills (such as critical thinking), and characteristics (such as honesty, ethical behaviour and respect) should also be considered critical attributes expected of this role.
Ideally, preparation and execution of the recruitment process should not be rushed – in cases when it is, the risks associated with a significant strategic change heighten considerably.
A timeline should align with organisational priorities, so that the recruitment process does not conflict with, or impede, achievement of major projects and organisational milestones. Given Boards usually only met a few times each year, the Board’s meeting calendar should anticipate (well in advance, if possible) those meetings when discussion and decision-making regarding CEO recruitment are needed.
Internal or External Candidate?
The pool of candidates will either be internal or external to the organisation. Recruitment of high-quality internal candidates assumes the organisation will have implemented a conscious, structured CEO succession plan, which takes time.
Recruitment of external talent brings with it several advantages and disadvantages. Research** shows that externally recruited CEOs often seek much higher annual remuneration than the departing CEO, and are less likely to remain with the organisation long term. However, an external CEO often brings “fresh eyes” to help address long-standing challenges and organisational threats. If the departing CEO’s leadership has been less than ideal, then recruitment of a new CEO who has no history with the organisation may help improve staff morale.
Search Firm Support
Given the complexity of HR recruitment, particularly of senior executives, Boards often outsource the recruitment process to a consultancy firm, who manages the recruitment process, reporting to the Board at distinct process milestones. The advantage of employing search firms is to expand the pool of candidates, identify appropriate applicants and undertake the laborious HR recruitment tasks, such as first-round interviewing of applicants and reference checking of applicants. Assessing applicants’ personal attributes, such as honesty and respectfulness, may be difficult, but just as important (if not more so) as management and technical skills and knowledge. However, the Board cannot abrogate responsibility for the important Board duty of CEO recruitment and must ensure appropriate oversight of any outsourced search firm.
Once the successful candidate has started work, the Board may be tempted to consider the recruitment process completed. However, the next year (or depending on the organisational challenges, even longer) is crucial in determining how successful (or otherwise) the CEO will be in the longer term.
The Board should factor into its board calendar more regular review of CEO performance over the first one to two years of employment, before declaring the recruitment process a success.
Faileen James has considerable experience in CEO recruitment, both as a Board member and CEO applicant. If you need support or advice in your Board’s CEO recruitment, contact Faileen.
* Jenter, D., Lewellen, K., Performance-Induced CEO Turnover (September 2017). CEPR Discussion Paper No. DP12274. Available at SSRN: https://ssrn.com/abstract=3035268
** Saporito, T.J., Winum, P., Inside CEO Succession: The Essential Guide to Leadership Transition, John Wiley & Sons, 2012