“One-half to one-third of new CEOs fail within their first 18 months.” Wow. That’s a costly mistake that goes well beyond the cost of hiring a new CEO. During that CEO’s brief tenure, the organization typically loses ground, resulting in lower performance and loss of key staff. And that statistic applies equally to internal successors and to external hires. Yet, according to a 2012 study by RHR International, only 35% of new CEOs surveyed said their boards were sufficiently involved in their transition.
Instead, boards give new CEOs some ‘space’. Rather than allowing the new CEO to settle in and find their footing, however, that lack of involvement makes it harder for the CEO to succeed. That suggests a clear opportunity for boards to improve the odds for success – and drive measurable impact for their organizations.
So what’s a board to do? Here are four steps to set up your new CEO for success:
Start the transition early. Success requires more than financial and operating skills. Indeed, it’s more often the soft skills and leadership style that make or break a CEO, particularly in the early days. Before the CEO is hired, know where the organization is (or should be) headed. Then, consider how the political and cultural aspects of the organization may be challenging for the new CEO. During interviews, screen for the competencies and experience that will serve the candidate well in navigating these nuances in your organization. Once the deal is inked, the board Chair should assign a key point of contact for the CEO-elect; that board member helps to guide the new CEO so that she/he hits the ground running on Day One. Then, include individual leadership objectives alongside the financial and operating goals you set for the new CEO. That puts soft and hard skills on equal footing among the board’s expectations for the new CEO. Even better – develop the leadership agenda jointly with the new CEO, including his/her expectations for the board’s involvement.
Manage the hand-off. One study by Patrick Wright at University of South Carolina, found that 40% of outgoing CEOs stay on after a CEO transition. Whether or not the departing CEO or an interim successor stays involved in the organization after the new CEO takes the helm, that hand-off from old to new is critical – and not always handled well. Ideally, boards actively engage the departing CEO to help with the transition and facilitate the interaction. Working with both CEOs, the board defines clear roles during the transition and ensures that the CEO-elect shares substantive responsibilities. Help the new CEO to understand how decisions are taken today; of course, the new CEO may change this, yet she/he must understand the starting point. Set a clear timeline for the transition, including evaluation by the board regarding progress in shifting responsibilities and accountability.
Unfortunately, not all sitting or interim CEOs have the skills or the nature to manage the hand-off successfully. In that case, boards can step in themselves or hire an external coach to support.
Consider the leadership team as a whole. Hiring a new CEO is not an isolated event. By definition, the new CEO effects change in the way the organization works and the nature of relationships – just by being a different person at the helm. That change is particularly true for the leadership team. External hires are often perceived as not truly understanding the organization. Internal successors shift from peer to chief, literally overnight. Consider the collective capabilities of the leadership team, including those of the incoming CEO. If possible, make staff adjustments prior to the CEO’s arrival, so that he/she begins fresh with a team whose capabilities are complementary and suited to the future vision for the organization.
During the hand-off, the board is often uniquely qualified to offer insights about the leadership team, including who has been most influential to date and who may have been passed over for the role. Use that to spark conversations by and with the CEO about what they’ll need to lead effectively. Working together, the CEO and board incorporate those ideas into the leadership agenda.
Facilitate Connections. A failure to manage stakeholder relationships can derail even the best leaders. The board can help the CEO to identify the key stakeholders, develop stronger relationships with them, and prioritize which relationships to develop first. For example, the board can make introductions to key external stakeholders, perhaps as part of the CEO’s formal learning agenda and action plan. Internal successors are often first-time CEOs and may need help in establishing themselves in this new role. Guide them to understand what it means to be a CEO, and visibly put the weight of the board behind them. Doing so allows the new CEO to borrow credibility from the board as she/he gains traction.
Setting up your new CEO for success creates tangible value for your organization. Yet, numerous studies suggest boards can do this better. Throughout the process of finding, hiring, and integrating your new CEOs, set aside specific time and resources to support him/her. Done well, that initial investment will pay dividends for your organization well beyond the CEO’s transition period.