ceo transition

8/9/2019 CEO Transition

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M anaging CEO tran sitionsA leader's best chan ce to lock in new organizational norm sis usually during the first few m onths on th e jobTsun-yan Hsieb and Stepben Bear

A new manager brought in from the outside. A key retirement. An executivewaiting in the wings who finally gets his or her chance. The splitting ofthe Chairman I CE O role into two separate positions. The departure ofunsuccessful contenders. Beyond their obvious effects on individual careers,such changes are also opportunities - often not fully exploited - to bringabout significant organizational change. Never more so than w hen thechange takes place at the very top with the appearance of a new CEO. These"appearances" are becoming increasingly common as more industries facediscontinuities and more stakeholders assert their rights. Indeed, nearly aquarter of the CEOs o/Business Week's top 1,000 companies have turned overduring the past two years. How can companies and new incumbents betterleverage these stressful periods of transition to break out of theperformance-limiting aspects of the established order?

PERHAPS AN OIL COMPANY president put it best: "This place has hadthre e pre sidents in five years. My predecessors all made t he m istake oftryin g too ha rd to get thing s back to norm al. The organization took it asan endorsement of business-as-usual when a lot had to be changed. When Icame in, the place felt rudderless. They were watching me to see if I wouldbreak them out of this rut. I did." Appropriately so. CEO transitions offer anatural, albeit brief, opportunity to shake up the status quo and change itfundamentally.Make no mistake, even in the most flexible organizations, an entrenchedstatus quo rapidly develops. Everyone knows what is important; who has


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thrown up for grabs; uncertainty takes the place of continuity; and what wasonce aneasy and standard route tofollow becomes avoyage into unchartedwaters. Within 100 days or so, however, anew order usually gets establishedand things settle down again. Or, in the absence of strong leadership, the oldorder reasserts itself Either way, such periods ofgenuine transition - the

time when all is influx, nothing is fixed, the/-IT-1/-VJ. i.- J- i. status quo is interrupted, and anorganiza-CEO transitions disrupt ,. , .,, ,, . . . ,, , . . n, tion buzzes with the expectation ofchange -the einciencies of the c n i . J J.1 are painfully short,status quo and sever theweb of familiar practice T, j. ^^ . i -c ^ J JBut they arealso - if properly graspedand

managed - a unique opportunity to reset acompany's rhythms to the requirements of the future. The general readinessto listen, learn, and act is at itsheight. So is thewillingness, during thihoneymoon phase, to defer judgment and give new incumbents the benefit ofthe doubt. These are, then, times of fluidity during which new performanceexpectations can be established more easily and new organizational norms arecast. They are also when the foundation stones get laid upon which aCEO'slegacy will be built.From a series ofdiscussions with CEOs who have undergone such periodsof transition andfrom our and ourcolleagues' work with public-andprivate-sector leaders around the world, we have distilled six lessons abouthow to make the best use of these periods of fluidity.

1. Start with where you want to end upSprinters are trained to keep their eyes on the finish line, but itis easy to bedistracted by aU the excitement as arace gets under way. CEOs who are new totheir jobs can also get distracted by the day-to-day urgencies of running theirbusiness and bytheir felt need to hit theground running. Everyone tellthem, "When in doubt, do something." But looking back years later, they oftenregret this peremptory action bias. As theCEO ofone media companyacknowledges, "I expended alot of my - and my organization's - energy on areasthat should not have been priorities."


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A fair test of legacy-related aspirations is to ask, "What would be my numberone regret if I had to leave without achieving it?" Due diligence, however,requires asking as well, "What is the number one thing that could derailwhat I hope to achieve?" Is there, forexample, a capable next generation of A /> j ^ ^ i i j T, J , J , ij A fair tes t of legac y-relatedleaders to carry on - and build on - . , / ^., ii J _. TV .n asp iration s IS to ask,the present leader s accomplishments.'


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MANAGINGCEO TRANSITIONS

Chain reactions, s tar ted bynew le ade rs, can also hav e beneficial effects.Ano ther new C EO, for example, we nt to work early every day during his firstthree weeks at atransportation company. His intent was to start the dayearly enough to read upon the company's business before staff membersshowed up at 9.00am. C oming in around 7.00am m ean t th at he literally had totu rn on the lights. By the second week, he noticed th a t m ore and m ore peoplewere coming in early. By week 3, someone always arrived before he did andturned on all the lights.These c hains of influence m ean th a t t he re are possible economies of effort inchanging an organization's dynamics. When the new CEO of a large USrailroad took over the reins, he wanted tomove immediately tomake theindulgent corporate culture far more people- and performance-centered.Among the flrst things he did was close the executive dining-room and kickexecutive offices out of their prime ground-floor space so they could bereplaced with a fltness center. By the time he announced that one-third ofcorporate staff would be cut, the organizationhad already gotten the message: change was


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and otber resources seldom, if ever, match aggregate demands. Theseexpectations, moreover, often clash, and confiicts of interests arise. Worse stillis the discovery that promises have been made or special deals agreed to by

predecessors. Never mind the flne print,rru 4. UI T T. J Al. thereistheimplicitspintofthe contract toThe trouble I had vi^as with j i, ,. rm 1 contend with,expectations. They were there ,they were real , and would have ., , ^ , ^ , ^ ,1 1 , , , - T T i j It was easy enough to see wbat tbe formalcome back to haunt me if I had ,,. ^ ., __ ~, . ^

J. J J J.1 J. J.1 ^n obligations were , said a CEO of bis t r ans i t ion ,pretended that they were not _, * . , i T u J -..i. ^ ^Tbe trouble I bad was with expectations.They were seldom written down, and my

senior managers were not close enough to the troops to know what they were.Even wben I ferreted tbem out, my managers would deny tbat tbey werelegitimate. But believe me, tbey were there, tbey were real, and they wouldhave come back to haunt me if I had pretended tbat tbey were not."Somewhere along tbe line, tbese unchecked expectations can easily turninto obligations. Whetber it is a promise of job security for employees, tbepromotion prospects or role deflnition of particular executives, or tbe size oftbis year's bonus packages, new CEOs often bave a hard time separatinglegitimate obligations from ingrained but unbridled expectations. One CEOexplained bow bard tbis is. "Tbe expectations tbat I was given by mypredecessor and tbe board were terribly vague. Tou sbould be able to turn itaround in a year or so,' tbey told me. And 'be sure not to give in to uniondemands.' I really had to dig hard to find out wbat caused tbem to believe tbattbese expectations could be satisfled."_ ,, ^ . . . . , , . New CEOs often have a hardi'urther, transitions inevitably give ,. ,. i ,. ,. ^ ^ . time separating legitimatense to new expectations as well as to i, . . r . ii .

, \_ . ^. , obligations from ingrained butquestions about existmg ones. Proflts u -ji J A-J , , , . , " ,,, ^_,^ unbridled expectationsare down and tbey just fired tbe CEO.Is my job secure witb tbe new CEO?""He brougbt in a new VP Marketing from tbe outside. Wben is tbe next sboegoing to drop on tbe rest of tbe marketing department?" "This guy [thin-coming CEO] is notorious for cost-cutting. What will happen to our tradition


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uncertainty, some new CEOs treat all existing expectations as obligations andvow to uphold them across theboard. In so doing, however, they squandera unique opportunity to reset expectations at a point when employeeanticipation of- and likely acceptance ofchange is highest. This, of course,locks in the sta tus quo.The CEO of a medium-size enterprise with three related businesses lEimentedabout the missed opportunity to reset expectations when he was firstappointed. The old order was that divisional presidents were left alone to runthe business. Synergies across the businesses were rarely exploited because thethree divisions operated asfiefdoms.Without thinking through future needs,th e new CEO reaffirmed the divisions' independence. Two years later, hewas still trying to get divisional managers to focus on potential synergies -long after competitors had pulled ahead bydint of their integrated strategies. ~CEOs m transit ion oftenmi J 11 1 1 n, i. n ,1 feel compelled to make earlyThe second problem, which often follows the . i . i ,, , . , , . . , ... promises onvs^hich theyfirst, IS unkept promises. LEOs in transition \.. , , x j T ' , n 1 ^ , 1 . ultimately cannot deliveroften ieei com^pelled to make early promiseson which they ultimately cannot deliver.Why? They bow to the sentiment of the people around them at the time.Wanting to be liked and accepted, they let good intentions cloud their businessjudgment.The CEO of a North American company felt it was urgent to allay employeeanxieties following a merger with a major competitor. He quickly announcedth at no one from either company would lose a job as a result of the merger - apromise that was irreconcilable with harsh industry realities and, therefore,clearly imrealistic. Three recessionary years later, he had to face up to two yearsof downsizing that eliminated thousands of jobs. Employees who had lived withan expectation of "life-long" employment, which was strongly reenforced by theCEO's promise of nofiring,were traumatized. The CEO retired shortly afterwithout ever recovering from the stigma of his "broken contract."

4. Get your real team together


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their true strengths are for a role to which they have not previously beenexposed. It may be easier to ask: What am I not good at doing? This kind ofsoul-searching can also help the m pu t in place m ana gers able to compensate fortheir particular weaknesses.Although th e freedom they enjoy to carry out major people and role changes wiHvary by situation, new C EOs seldom hav e the lux ury to move as man y peopleas they w ant as quickly as they would like. In the short term at least, they oftenhave to m ake compromises on which people ought to go in which places. This istolerable - as long as these compromises boost overall leadership capacity. Theonly caveat is th at thes e comprom ises should not be forgotten dow n the roadas lower-level talen t m atu res and o utside candidates become available.A newly-instaUed CEO at a financial services firm responded to this problem byprivately classifying his executive team, through careful assessment, intothr ee categories: keep ers, watchers, and goners. "Keepers" were clearly majorasse ts whom he quickly informed of the ir s ta tu s even before the ir formal roleswere decided. This reduced their anxiety andminimized the risk of losing them. "Goners" -. T ^T- I/^ I I i. , . , .,.^. 1 1 ^ ^ J n Nevsr C E O s s e ldom ha v ewere major liabilities, who sub tracte d trom ,, , ,, , 11 1 J I.- -4- rpu u t h e lu x u ry to m o ve a s m a n ythe overa l l l eader sh ip capac i ty . Though ^ .^ .. - , . . , , J n iu p eo ple a s t h ey w a n t a spEimiul, visibly - and quickly - removing the m i i ,i i T T I^ , , , , n ^ X J .Li qu ic kl y a s th e y w ou ld lik ewou ld un l e a s h f r u s t r a t e d e ne r gy m theorganization. Finally, "watchers" were peoplewho could become major assets if they could address one or two deficiencieswithin a reasona ble time, say 12 to 18 mo nths. Meanwhile, they rep resented ane t addition to the overall capacity of the team .Bu t w ha t if a new CEO h as no fiexibility to move on the problem cases? W hatif the team is still too large and unwieldy? In such cases, leaders oftenunderestimate the power of informal devices like the use of forums andtea m s to improve overall effectiveness. It m ay help, for example, to change theestablished practice on when and with whom the CEO meets one-on-one,w hat th e agen da is when the whole group meets, and when subgroups of twoor three get asked to address specific issues.


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Communicating people choicesAs important as making tough people choices is the decision about when emdhow to communicate them. Should I do it sooner rather than later? ShouldI leave people to read the tea leaves and figure it out? Should I have explicit,face-to-face conversations with the individuals affected?Again, there is no one right answer. One CEO even told us, "Sure, you've got tothink quickly about your people. But that doesn't mean you have to act

immediately on everyone. The most urgent"Explicit and sooner"is usual ly bet ter th an ^ " ^ ^ experience, however, is that "explicit"implicit and later" ^"^ "^^^'' ^' ""^^"^ ^^^^"^ *^^ "^P^^'^^^and later." Anxious people during transitionsare quick to read meanings, often notintended, into subtle shifts in role or resource allocation. Who is in favor?Who is down and on the way out? Left fuzzy, these signals will evoke politicaljockejdng, whip the rumor mill into a frenzy, and tie up a lot of otherwiseproductive energy in an endless guessing game.Thefinancialservices CEO described above moved swiftly - within 30 days ofhis appointment - to reassure the "keepers." He acted on all the "goners," asindividual decisions got made, within the first 60 days. At the same time, hetold all the "watchers" why they were on probation and what they had towork on and by when. Each had the chance to buy into the challenge or take anexit package instead. At first blush, his approach may appear blunt, almostbrutal. But even those executives who were terminated thought he wasfirmbutfair and actually appreciated his explicitness.5. Focus on a few themes"If everything is a priority, then nothing is a priority. It may sound trite. Butwe do it to ourselves all the time. At times, there seemed to be 200 'critical'things to do. Even when I pared the list down to 30,1 still felt swamped." Thesentiment is familiar. But so is the appropriate response, even during thehectic days of a corporate transition : the best directions are simple directions.When things get overly complicated, it


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"I gave up a lot of important-looking things and erred on the side of beingbrutaUy simple," observed the paper company president. "I focused on only twothemes - qua l i ty and th roughpu t .

M oving quick ly to ar t ic u l at e Everyone knew what was impor tant ,a few sim pl e th e m e s feed s ^^^ *^^* "^^^^ ^ ^^^''gy Productivean o r g an i za t i o n ' s h u n g e r ^ " P* ^^ ^^ gam e,

for a se ns e of w h a t th e ne word er m ig ht en tai l ^ ^ g t ransit ions , moving quickly toarticulate a few simple themes feedsan organization's hunger for a senseof w ha t the new order m ight e ntail, which frees it to respond positively to th enew direction. It also provides an overall context so that people can come togrips with everything that is going on. In short, it provides a beacon of stabilityin a se a of chan ge.

But what makes a good theme? How is it different from a slogan? First, ofcourse, it mus t convey the essence of the ration al case for the new order. Bu t itm us t also be emotionally compelling. If it is not, it will not last bo th throu gh thetransition period and through the three to five years it will take to reach theimplied organizational goals. The life of a slogan, by contrast, can be measu redin days or m onths , not years.More importantly, a theme finds its richest meaning as it energizes - and getsenriched and energized by - the ongoing, day-to-day actions of a broad cross-section of people. In fact, one CEO describedthe "rule of 3Till i \ T f, ! Effective themes meet theand 300 : three simple but compellmg them es .^^^^ ^^ 3 ^^^ g^Q,,. ^ j ^ ^ ^ ^ ^^^.can legitimize and susta in up to 300 separa te ^^^ co mp e l l in g t h e m es ca nbut consistent organizational ini tiat ives. leg i t im ize a nd su st a in u p to 300

. , , ,, ^ o r g an i za t i o n a l i n i t i a t i v esNot surprisingly, the themes best able tomobilize large numbers of people tend to bevalue-laden. The new CEO of a natural resources company, for example,captured the im agination of his people when h e enunc iated the dual them es of"velocity" and "business-like thinking." Both readily developed personalmeaning for everyone in the organization. Front-line people recognized in


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accountable people" who relied on "simplified bu siness p rocesses" and "strongimplementation skills." They responded well initially, but never broke out oftheir old ways ofdoing things. The reason? Key initiatives were underled,and expectations remained unclear on how far orhow fast to change. As aresu lt, promising them es soon turn ed into hollow slogans.

6. Balance between short and long termTr an s i t i o n s are always hect ic , chal lenging t imes . The pace is i n t en se .Everything demands attention. Daily calendars are filled with countless urgentand immediate tasks . In such an envi ronment , it is not surpr i s ing thatimportant long-term priorities often slip out of focus. Even with the bestintentions in th e world, it is not always easy to tell wh at m us t be done now a ndw ha t can be done later. It is hard to strike the r ight balance. Indeed, a commonrefrain from many new CEOs is "There were so many opportunities to addvalue, that my biggest mistake was immediately to turn the place upside

down based on fiawed know ledge."M o s t n e w C E O s g r a v i t a t e to _ ^^^ j. j . - , ^ , i. iv/r ^, . , . Few new CEOs get the balance right. Mostn e a r - t e r m u r g e n c i e s, s o a k i n g . ^ . . ., . . . , , gravitate tonear-term urgencies, soaking upup p rec ious t ime t ry ing to keep . . . , , , , ?,, 1 1 r f. 11. rr precious time trying to keep the wheels fromthe wheels f rom fal l ing off ;,.. .rru- _r i .j i. . ui ^falhng off. This is perfectly understandable. Afew deliberately take off for the mountains toruminate onpaths to the future, leaving the organization towonder what

might eventually come down on them. This isunderstandable, too. As is thefocus of still others, who emb ark on cost-cutting cam paigns , believing th a t th eorganization should do - and think about - noth ing else before it take s out a bigchunk of costs. This, of course, leaves everyone to worry about wha t wHl be at th eend of th e rainbow once the raging storm of downsizing ha s finally subsided.Balance, however, is important - and possible. Two simple principles mighthelp. First, people will be more enthusiastic about near-term sacrifices if theyknow tha t abette r future lies ahead. New leaders m ust ta ke th e tim e to spellout, even if only them atically, wh at co nstitutes th at be tter future. If they areclear about th e kind s of capabilities required in the new order, the ir people willbe better able to avoid cutting out muscle along with the fat. The previously


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controllable actions they can take. Even in this unfortunate circumstance,however, it is vital for the m to comm unicate the future-bu ilding exp erim entsbeing undertaken. No guarantees are needed, just openness about what isbeing explored. Investigating a strategic alliance, contemplating an industryrestructuring, or reexamining fundamentals of a business generates movementforward that, in turn, may open new possibilities not imagined before. This isnot an argument in favor of movement for the sake of movement. Only areminder that there is an upside to l iving in a turbulent world: there arealways new possibilities - and new opportunities - to explore."We may our ends by our beginnings know," wrote Sir John Denham nearlyfour centuries ago. He might just as easily have been writing about today'sCEO transitions. Q


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