CEOs today are unlikely to remain in office for quite as long as their predecessors. Luc Vandevelde was Chief Executive of M&S for four years. And Greg Dyke was Director General at the BBC for four years too. In fact, recent reports* indicate that in the past five years, around two-thirds of all major companies worldwide replaced their bosses and that CEO tenure has decreased sharply.

Job security for CEOs globally is diminishing. In virtually every industry CEO turnover is rising and leadership changes are occurring more frequently. If these trends continue, they will have a significant impact on executive careers and how organisations are managed. As CEO tenure is reduced, a growing number of leaders will be required to implement their plans and strategies within more limited time frames, reinforcing the current corporate focus on short-term business results.

Despite these changes, many companies still tend to look for CEO successors with extensive company experience within their own ranks. So whilst many companies feel the need to change leaders more often, they still place a high value on executive continuity and stability. Because of the complex nature of corporations today, it’s hardly surprising that corporate boards prefer candidates to have come from inside the business because they tend to have market, product, technical, organisational and cultural knowledge that’s required.

Corporate governance

As a result of corporate scandals, such as Enron and WorldCom, there is a growing trend amongst organisations to seek objective expert opinion about the capability, psychological profile and fit of their potential CEO. It’s not just about satisfying accountability to boards, shareholders and government ministers, but also regulatory requirements imposed by industry bodies, as well as legislation like Sarbanes-Oxley. This has spelt an end to ‘on the nod’ appointments. Accountability for the most senior selection decisions now have to be justified on the grounds of externally benchmarked assessed capability and psychological profile, above and beyond track record, and interviews alone.

Given the combination of the need for rapid change, together with the need for continuity, many companies are attempting to manage CEO churn and transition by well-established and sophisticated succession planning instruments, of which an ‘external, objective and scientific’ opinion is a part. The objective is to optimise the flow of management talent within the organisation to reward high-performing executives, and ensure smooth leadership changes with minimal disruption. In addition, as CEO tenure diminishes, the need for incumbents to make a real difference fast becomes apparent. This has an impact on how leaders manage and what they can realistically contribute. Many want to improve their leadership skills so that they can implement their business plans more quickly.

As a result, ER Consultants have seen a marked increase in the demand for our skills in executive coaching and development to facilitate the rapid growth and effectiveness of new corporate leaders. We have also noticed an increase in requests for our psychological assessment tools and innovative assessment centre type exercises to help organisations select, appoint and develop capability at CEO and board level. This requires us to have both an understanding of specific organisational context – such as, what constitutes CEO excellence within that context – together with the inventiveness to conduct relevant and objective assessment of capability and psychological style.

However, in the early ‘90s very few plc boards or public sector organisations insisted upon this level or type of external expertise to make top level selection decisions. So what does this mean for today’s CEOs and the organisations they lead?

We anticipate that corporate leaders can expect to spend less time in office than their predecessors and to expect more career transitions. CEOs should therefore plan and prepare for such transitions, and this should be an integral component of their career planning. However, it also reaffirms the need for effective succession planning and executive education and development.  Indeed, a systematic attempt to identify, develop and retain high-potential leaders plays a critical role in ensuring smooth leadership transitions and continued organisational success. 

Find a leader

ER Consultants recently helped the board of a well-known FTSE 250 technology company find an internal successor to their current CEO. They came to us because they had a need to both define and assess the required blend of capability and psychological style that would ensure continued organisational success.

The current CEO is due to retire within the next two years. The company has been successful for over 30 years. The board had a general sense that his successor had to demonstrate strategic vision, personal impact and change capability to help the company achieve its next phase of growth. However, whilst these generic competencies might apply to any CEO of a FTSE 250 plc, the critical determinant of leadership success is ‘situational fit’.

In other words, we needed to be sure about the specific differentiators for the CEO of this company, in this sector, at this stage of the company’s growth. We met with the board and other key stakeholders to understand what kind of capability this CEO had to demonstrate to really make a difference. We asked them to describe examples of CEO excellence, that may have been demonstrated by the existing CEO, and to anticipate excellence required now and in the near future. We used our own generic leadership competency framework as a prompt

Did they have a sense of what excellence meant in their business context? They clearly did. Not surprisingly, once we understood their precise requirements the generic competencies became more specific and needed to be calibrated. Change capability became: “Not too much change please, because we don’t want to tamper with the culture that has made us successful to date. He/she needs a high degree of empathy, together with tenacity and resilience, but he/she mustn’t rock the boat. And yes he/she needs to be highly independent and socially inclusive with a sales focus, as well as have cross-cultural sensitivity.”  

In the board’s view, the incumbent needed a blend of generic and specific capability, and a particular psychological style to lead the next phase of the growth. Based on the data we collected, we identified the most suitable exercises to assess each differentiator at least twice. This formed the basis of an assessment matrix.

The exercises included business simulations, presentations, competency-based interviews, analysis of case study material, problem-solving exercises, 360-degree feedback and personality profiling. We adapted the exercises to the idiosyncrasies of their organisation, and together with the key stakeholders made sure they were business relevant. This gave us clear insight into both the generic capability and style of the candidates, and their fit with the requirements of the company. In addition, the contextualising of the exercises ensured that the whole process had a lot of face validity for the candidates and the organisation.

The results?

This company has now identified a successor to the current CEO. They are confident that he/she has the potential to become CEO within the required time scale and they have a development programme in place to build on his existing capability. The board is satisfied that the executive management group has taken an objective and rigorous look at their internal capability, and identified a candidate that benchmarks generically, as well as meeting the specific needs of this company now and in the near future.