The Next CEO

Board and CEO Perspectives for Successful CEO Succession

Thomas Keil, Marianna Zangrillo

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000379495
• Edition: 1
• Topic: Business
• Subtopic: Corporate Governance
• Index: Business

Shortlisted for the Business Book of the Year (International Books category) 2022

Every year, companies spend billions of dollars in board time and headhunter fees on CEO searches. In fact, the selection of the next CEO is the single most important task of the board of directors. Yet, despite the huge amount of time, money, and attention given to the task, many CEO changes fail, with disastrous consequences for all concerned.With so much at stake, it is natural to ask what companies and their boards can do to increase the odds of success. Illustrated with an abundance of real-life examples from interviews with CEOs, C-suite members, members of the boards, and headhunters supporting CEO searches, The Next CEO explains how boards can improve the odds of success with CEO succession by identifying clear CEO mandates and associated CEO profiles and by selecting CEOs that are fi t for purpose. It further explains how the CEOs of leading corporations effectively take charge and create results, providing a roadmap for incoming CEOs. These ideas are brought to life with case studies and interviews with well-known corporations such as ABB, Alibaba, Freudenberg, GE, Google, HNA, HP, Microsoft, Nestle, Nike, Nokia, Novartis, Roche, Sony, Tata, and Zurich Insurance. The book is invaluable practical reading for board members of medium-to-large-size fi rms involved with CEO succession, and for those preparing for their fi rst CEO position. It is also relevant to headhunters who are involved in the process of CEO succession as a working tool for them and their clients. In addition, the book will be relevant to courses on corporate governance and strategic transformation at the executive and MBA levels.

Part I

Boards defining the mandate and profile for a new CEO

1

Preparing for CEO selection

2010 marked a period of turbulence for Hewlett Packard (HP), the US-based information technology giant. Mark Hurd, at that time the CEO, left the company following a scandal that involved sexual harassment charges and false expense claims.¹ The chairwoman, Patricia Dunn, also left the board unexpectedly following a criminal probe into the use of private investigators. In short order, the board of HP selected Leo Apotheker, the former co-CEO of German software maker SAP, as the new CEO and Roy Lane, a venture capitalist and former software executive, as its new chairman. However, the succession did not go well. Within less than a year, and after a failed acquisition that led to multi-billion-dollar write-offs, Apotheker was forced to leave HP, and the board was again looking for a successor.

As more and more information about the succession process has become public, it is clear that the CEO selection at HP left much to be desired. As an anonymous insider told the press:

The board … gave no indication that they understood the tremendous change in strategy they had put under way by choosing two software experts to head HP, the world’s largest personal computer maker… . The board believed HP was in good shape financially and needed an executive who would keep the company running efficiently but bulk up its software business.²

Part of this narrow view may have resulted from the disengagement of the board during the selection process. The board left the selection largely to a four-member search committee, and many of the board members never interviewed Apotheker during the recruitment process.

The selection of a new CEO is one of the most important, if not the most important task of the board of directors.³ However, as in the HP case, misunderstandings or outright poor preparation often dominate the selection process.⁴ And as a result, the choices are not well aligned with the needs of the corporation.

CEO mandates

CEO positions by their nature carry a broad responsibility and should allow the leader in the CEO position substantive flexibility to set the course of the corporation. Even with such a broad power to set the direction, boards should not mistake the need for freedom in CEO roles as carte blanche not to define a clear mandate for what the CEO should accomplish. In fact, our research suggests that one of the key drivers of successful CEO succession is clarity about the CEO’s mandate.

CEO mandates, albeit broad given the position, should clearly identify the strategic challenge that the organization and the CEO need to address going forward. They should be set based on a diagnosis of the situation the organization is in and a deep understanding of the strategic imperatives that arise from that situation.⁵ Mandates set the direction and boundaries for CEO action and will differ in the degree of change they entail, the pace and timescale of change required, and whether they are best carried out by an insider or outsider to the corporation. A clear mandate also helps to define the profile an incoming CEO needs if they are to be successful. Andreas Koopmann, former chairman of the board (2012–2020) of Swiss industrial company Georg Fischer (GF) told us:

The most important thing is to be clear, where we think the company needs to go. And then, what person best fits to take the company there. So from the strategy comes a job profile that depends on the strategy or the phase the company is in.

To find a CEO who can take the company forward to success, the board needs to define a CEO profile that fits not only the company in general but also the specific challenges of the years to come.⁶ This means that the same company may need very different CEOs in different stages of its life. This was emphasized in a conversation with Michael Süss, chairman of the board at OC Oerlikon, a listed technology group:

One basic rule is that you often need different types of CEOs in different phases of a company’s lifecycle. At some point you need somebody who can run a reorganization. Then everything will go back to normal and you need someone who is very strongly market-oriented and can continue the work. These are rarely the same people.

Clear CEO mandates are not only essential to finding the right candidate; they also provide clarity for potential candidates, who will quickly understand the expectations of the board and main shareholders and can better assess their own suitability for the role, thereby reducing the risk of surprises and misfit, as Andreas Joehle, then-CEO of medical suppliers manufacturer Paul Hartmann AG emphasized:

The first question for me is to understand what does the main shareholder or the board really want? Do they want change? Because if they don’t I am really not the right candidate. If they do want a change, then the next question is to understand the time frame. If they want a radical transformation or rather an evolutionary process. Those are completely different stories. I need to know from the outset.

The extensive conversations we had with top leaders who went through the process, either to appoint or to be appointed to the role, led us to map four distinct mandates that are best addressed with specific CEO profiles and also define the boundaries for the tasks of the incoming CEO. These mandates and the associated profiles are summarized in Figure 1.1. They differ in terms of the length of the time horizon and the degree of strategic change they involve.

Figure 1.1 CEO mandates

Continuation mandate

The first mandate – continuation – is common when boards favor the continuation of the existing strategic direction under a new CEO. Continuation mandates tend to have a short time horizon and emphasize small strategic changes – some say even strategic stasis. With this mandate, the new CEO is tasked with executing an existing strategic path that has been chosen under the predecessor, who often continues on the board, leaving limited discretion for the new CEO. To be successful, continuation mandates typically are the domain of internal candidates who not only need to fully buy into the existing strategy but must also be willing to work within a relatively tight framework set by the board. CEO profiles fitting this mandate often aim to replicate the profile of the predecessor, are focused on excellence in driving operations, and need to tightly fit the existing culture of the organization. CEOs who try to step out of this framework are likely to experience conflict with the board and frustration. Continuation mandates are often also chosen when a CEO departs unexpectedly, due to death, for instance, or because the incumbent takes on a new job. In this case, internal appointments may be an interim solution with a short time horizon.

Evolution mandate

While the strategic stasis of the continuation mandate may be extreme, many companies and their boards desire gradual adjustments to what they perceive as a successful strategic direction. They may seek changes in how this direction is being implemented, for instance, by increasing the pace of strategy execution. Evolution mandates typically tend to have a longer time horizon yet, like the continuation mandate, emphasize relatively small strategic changes. CEOs with evolution mandates have more leeway to make changes and over time can also gradually adapt the strategy. Inside CEOs with experience in the business and the chosen strategy may seem the obvious choice for evolution mandates, yet external CEOs may also be selected based on the specific focus of the strategy evolution and the need for specific skills. CEO profiles need to balance the fit with the existing strategy and organization and the skills and independence needed for its evolution.

Transformation mandate

Transformation mandates require a fundamental change in the organization’s strategic direction but typically do not involve immediate financial distress. They often involve longer time periods that allow for large-scale strategic and operational change. Companies may aim to lift their internationalization strategy to the next level, for example, or position their organization better for emerging opportunities in their industry. Transformation mandates offer the CEO substantial latitude to design the change around a new vision and, given the absence of short-term pressures, provide latitude to plan and implement the changes. The strong departure from the company’s past provides advantages to CEOs from outside the organization who can envision the company without past legacy. For instance, when Erwin Mayr was appointed to lead Wieland Werke, a German manufacturer of copper products, the Europe-centered company aimed to expand its geographic footprint and needed to restructure its organization, processes, and systems to deliver on its global ambitions. Coming from a large US-based multinational corporation, Mayr could draw on firsthand experience to help meet that objective. The specific CEO profile often emphasizes a break with the existing management rather than continuity and may differ depending upon the specific type of transformation intended.

Turnaround mandate

The most drastic changes are needed in turnaround mandates when large-scale strategic changes are combined with a short time horizon. When boards define this mandate, the organization is often in financial distress or fundamentally misaligned with a changing environment, and the new CEO needs to take drastic action to turn the company around or break the inertia, often under strong time pressure. Turnaround mandates may be the result o...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Acknowledgments
• Introduction
• Part I Boards defining the mandate and profile for a new CEO
• Part II The work of a new CEO
• Part III The next act
• Bibliography
• Index