When a CEO is removed, inquiring minds want to know the answer to one question – why? Surely, insiders at Barnes & Noble, the business press and others are buzzing with rumors. Nothing surprising about that.
The bigger issue, in this case, is the board. Four CEOs in five years? That is more than a pattern. It indicates something at the board level isn’t working. Given the declining sales over the past five years and the ability of competitors to act with greater speed and agility, I suggest the board needs some help. A board that doesn’t function well can’t make good decisions, even when the individuals on the board are capable and experienced. Let’s assume that is the case for Barnes & Noble, that each individual board member is capable and is a good fit for this board at this point in time. If not, and some board members need to step aside, those conversations should happen with both candor and speed.
Why is choosing a CEO so difficult?
The decision about who to name to run a company is not best made by lining up the history of achievements and selecting the most accomplished person. That’s history and it does not hold the predictive power many believe. When Jeff Immelt was selected to succeed Jack Welch at General Electric, no one thought he would preside over a loss of more than 35% of share value. Why that board left him in place so long is a mystery.
The CEO that a board chooses today will be in a different role, possibly also a different company and maybe even in a different industry than previously. The complexity that arises out of the interaction between person and context cannot be overestimated. Yet, time and again, boards weigh past achievement too heavily and the attributes and character too little. As one executive said to me, “We hire people for what they know and fire them for who they are.” Yes.
Even when candidates are evaluated closely, the methods are often invalid, frequently in the hands of those unqualified to use them and commonly compared to irrelevant criteria. Boards need confidential advice that is steeped in the specifics of the situation and informed by insight.
“Boards can’t afford to ignore risk and overconfidence is a leading cause of doing so.”
Leaders Are Usually Overconfident
In fairness, human beings are overconfident. If you are reading this and shaking your head sideways, the irony is you are most at risk of poor decisions based on overconfidence. One aspect of the phenomena is we believe that confidence rises when our judgments are accurate. We are wrong about that.
Recently I was speaking with a board chairman about an issue that was quite distressing to him. Despite the extent of his upset, he was sure that time will lead to improvement. No, they aren’t in the wine making business. He was looking for me to say, “It will work itself out.” OK, it might. What is the risk if it doesn’t? Boards can’t afford to ignore risk and overconfidence is a leading cause of doing so.
The Board Is Unclear, Or In Disagreement About Strategy
As the governing body, the board must be concerned with capital allocation. What to fund, what not to fund and the often-ignored issue of what to divest, should be a key focus. If the board is unclear about the strategic intent and direction or is clear but fighting about it, that’s a problem. Of course, if the strategy is a bad one to begin with, that could explain the issue, but it should be addressed directly rather than battling over how to work when the question is what work are we doing?
If the strategy is non-existent (don’t be alarmed, it’s rather common), the new CEO better be a solid strategic thinker. In my experience, this is one of the most important qualities for a CEO to possess whether or not a strategy is in place. Notice the focus is on strategic thinking not strategic planning.
Strategic thinking is what a CEO and board can do together. While a CEO can ask board members for advice about anything, regular conversations at the board level ought to be in the context of the business the company is in and what it is trying to become.
I wonder, reading over the Barnes & Noble Annual Report, how clear is it to the last four CEOs what business they are in? How clear is it to the board? This isn’t a question to ask when you are on the hot seat. It is a question to ask to prevent landing in the hot seat.