CEO/Executive readiness, succession, advisory, and onboarding

A large financial services company promoted a key leader into the position of CEO. Two of their peers were also vying for the top job. Almost immediately, the other two executives left the company. This created an unexpected leadership vacuum that cascaded within their respective departments, where no one on either team was able to step up into the suddenly vacant leadership spots. The lack of “ready now” successors required the company to look outside to replace those executive leadership roles, significantly disrupting their critical strategic transformation effort and creating additional chaos at the top of the company at a time when they could ill afford to slow momentum.

Similarly, a global manufacturing company promoted a key leader into the CEO role who lacked sales and marketing experience – an area where his predecessor had deep expertise. This expertise was a critical driver in the company’s success to date, and the gap at the top was stalling revenue growth and impeding the new CEO’s ability to deliver on the Board’s expectations. In order to fill the CEO’s knowledge gap, the company reorganized the head of sales and marketing role so that it was led by two executives instead of one. This unanticipated restructuring created confusion across the C-Suite and the rest of the sales and marketing organization regarding roles and responsibilities, which compounded their challenges in driving growth. The unexpected increased salary costs accompanying the additional executive role further impacted the bottom line, as well.

What these two examples illustrate is the Domino Effect. The Domino Effect occurs when a star performer is promoted, and there is no “ready now” successor to fill the role they are vacating. With so much attention placed on getting a new CEO into the role, the Domino Effect can cascade down through the organization and is an often hidden and unanticipated outcome that can hinder even the most capable chief executive from successfully taking the reins.

Assessing the impact of the Domino Effect

Conventional wisdom and the literature suggest that CEOs sourced internally outperform CEOs that are sourced externally. For example, in Harvard Business Review’s “Best CEOs of the World” top 100 list, 84% came from internal promotions1. The majority of leaders who ascend to the CEO role are COOs, CFOs, divisional CEOs, and some are “leapfrog” leaders identified below the C-Suite2. A question that has not been addressed is: what happens to the performance of the company when there are no internal candidates for the new CEO’s previous role? In other words, what is the impact of the Domino Effect on company performance?  

To answer this question, we compared the S&P 500 twenty best performing companies3 with the twenty worst performing companies4 based upon percentage change in stock price.  

‍What happened at the Best Performing companies?

Within the top 20 best performing companies, 75% of the CEOs were internal with 5 of the CEOs being founders of the company and 10 being promoted into the role. For their former positions, from which they were promoted, four were filled by internal candidates, and two were replaced with external candidates. Examining the leadership teams on the company’s websites, it appears that in three incidences, the role that the CEO vacated no longer exists. In one case the role was restructured and split into two different positions.

‍What happened at the Worst Performing companies?

70% of the CEOs at the worst performing companies came through promotions or being founder led (12 and 2 respectively), which is nearly identical to the best performing companies. All things being equal, one would expect a similar trend regarding the number of internal vs. external replacements for the CEOs’ previous roles from which they were promoted. However, we found that there were differences. Only three of the backfilled positions were placed by internal candidates and four were placed by external hires. In three of the companies, the position no longer exists, and two of the companies restructured the position.

Understanding the impact: disruption and worsening performance

The research shows little difference between the best and worst performing companies in relation to internal promotions and external hires for the CEO position. However, we do see more organizational disruptions in the replacement of the previous roles held by the CEO. A disruption is defined here as either the company was required to hire from the outside, restructure the role, or eliminate the role altogether. All of these create added turmoil and challenge for the new CEO as they try to move quickly to onboard and start delivering impact.

We found that disruptions were present in 60% of the top-performing companies, compared to 75% of the poorest performing companies. While more research is needed to uncover the nuances, our research suggests that companies with a stronger bench for newly promoted CEOs’ previous positions have less organizational disruption and outperform those who do not have a strong bench.

Tackling the Domino Effect before it falls

While CEO succession garners the greatest amount of the spotlight in the press, among board members, and in public sentiment of the health of a company, our research underscores the need for CEOs, CHROs, and Boards to focus on the Domino Effect as part of their C-Suite succession process. That is, creating a bench of potential successors targeted specifically for the CEO’s previous role, and the roles deeper within the organization that could replace those who are being elevated in the company at the time of the new CEO transition.  

Consider these best practices to get ahead of the Domino Effect:

• Build the backfill into the identification process. When identifying potential candidates for the CEO, simultaneously consider who may replace that candidate for their current role.

• Focus on the role rather than the person. You may not be able to replace the next CEO’s position with one individual, but you may be able to replicate their skills with people who can excel in the role with complimentary skills.

• Expand the purview of success profiles. Create success profiles for the CEO and those roles that are likely feeder pools for CEO. Ensure that the success profiles are future focused rather than focused on what is important today. Business realities change over time. What makes someone successful today may be different than what is required in the next 3 to 5 years.

• Leverage the power of data for determining future success. As you look at your bench, use structured assessment processes to assess individuals against the success profile, reduce the risk of biases towards individuals, and determine their readiness to address the future business challenges that the organization will face.

• Comprehensively build the right bench. Look broad and deep within the organization when identifying potential successors. You may find those “leapfrog” leaders who would otherwise be overlooked.

• Continually refresh your succession slate. Given the cascading impacts of the Domino Effect, it is more important than ever to ensure your slate is up to date with viable candidates for higher level positions. Consider doing so on at least an annual basis.

• Ensure that succession is seen as a strategic imperative across the leadership of the organization rather than a single event of placing a new CEO. The CEO and the CHRO should own the succession process, the Board should be involved, and the focus should stay equally on the CEO role and the successor leadership roles throughout the organization.

Finding, placing, and ramping up a new CEO is a momentous decision with big outcomes at play – for the CEO’s own success and the viability of the organization. If you embrace the opportunity to turn the Domino Effect into a strategic gameplan, you will be positioned both for accelerated success and impact.

‍References

1 Harrell, E. Succession Planning: What the Research Says. Harvard Business Review December 2016

2 Harvard Business Review Staff. November 2009. The Best Performing CEOs in the World. Harvard Business Review 41-57.

3 https://www.fool.com/investing/2023/10/10/invest-sp-500-stocks-market-portfolio/

4  https://finance.yahoo.com/news/20-worst-performing-p-500-200036146.html

This article was originally published in Fast Company.

‍When we began the year, top of mind for managers was keeping their best people and handling the burnt-out quiet quitters. Today, as inflation rages and hiring plans are shelved, it is tempting to believe that the talent crisis has passed. Maybe managers don’t have to worry so much about the disconnect and isolation. Perhaps employees will be more inclined to stay put in uncertain times.

Though the Great Resignation is probably over, it would be a mistake to think the challenge has passed. You need all hands on deck to focus on priorities during a recession. That means you must reignite the fire for quiet quitters. It’s important to stay focused on people during a recession because there is still a potential to become stretched and depleted. How can you re-inspire hearts and minds and still give people a sense of balance and flexibility?

Since the pandemic, many good changes have come to the workplace, not the least of them greater attention to the people side of business. The secret during a downturn is to remember that driving an agenda doesn’t mean losing that connection with your people.

Most of us think of ourselves as people leaders, but what we intend and how others see us is often different. What we’ve learned about leaders in challenging times has been assessed through data analysis. We know leaders who help others feel purposeful and resilient have qualities that are hard to come by and, therefore, highly valued.

Stay calm, carry on

We have been assessing leaders around the globe for 10 years, and we know that when leaders are calm in a crisis, people are more likely to share their concerns and get issues resolved. The qualities of composure and restraint are essential to building trust. Composure is the ability to manage through a difficult period with calm and resolve. Restraint is managing your emotions and creating a safe space for conversation. These are two critical aspects of constructing a psychologically safe environment where people love working and are free to speak up and be themselves.

People rally around leaders who approach situations calmly and objectively. Their teams know it’s okay to speak up, admit mistakes, and raise issues. If you struggle to remain calm, it can be helpful to delay a response, walk away, and give yourself time to think. If you set the intention to create a calmer place where people can thrive, employees will notice the change. During volatile times, remember to control your emotions.

Share more about yourself

Many of us are inclined to focus on others at the expense of sharing our authentic selves, but connection is a two-way conversation. When people don’t know us, they don’t trust us. This is what is meant by authenticity. In challenging times, such as a recession, you might be tempted to hold back and not share your concerns. The impact might be that people don’t feel they can trust you because they aren’t hearing the truth.

Leaders can demonstrate authenticity by sharing what is happening at the right time while also reassuring others that there is a plan. When you can be real with people, you are more likely to hear thanks. They want to be treated as peers in the workplace.

Storytelling can also be helpful during difficult times. Stories connect you with others and help them see you as human. People crave that kind of connection and appreciate learning from others. Showing authenticity in the workplace can increase engagement by 140%.

Balance humility and confidence

Great leaders balance confidence and humility, flexing both in challenging times. Humility is understanding you don’t have all the answers. People typically notice when a leader expresses genuine curiosity about their experiences and points of view. Asking questions and listening closely enables you to learn more, act more quickly, and address issues promptly.

Confidence is the ability to guide a team to make better decisions, especially when the choices during difficult times are less than ideal. It isn’t hubris or superior knowledge but rather a thoughtful, step-by-step approach to clarifying priorities, considering the data, and taking action.

Difficult times can incapacitate teams when they aren’t sure what to do. The plan forward must be altered, and too much is unknown. Great leaders help their teams consider the options and scenarios and remain flexible as conditions change.

Be receptive to feedback

To develop these qualities and evolve your leadership style, ask for feedback from people who see you in action every day to understand your shortcomings. We all have good intentions, but often our intentions don’t translate to inform how others see us. After meetings, try asking, “How am I doing?”

Hearing people out is the next step: Consider what the feedback they’ve shared might be true, however painful. After you consider the feedback, simple shifts can make a big difference in how people experience you.

As we round the corner to 2023, remember you’ve learned a lot in leading through challenging times. Although a downturn might test that learning, draw on the lessons and stay open to feedback. We can only control how we respond as leaders, and when we respond in ways we want to be led, we help create people-centric companies.

In advance of an important meeting with company executives, most leaders provide an agenda along with a set of pre-read materials.

The ask of the senior leader audience: Please review these documents before our meeting.

It seems like a simple request, except for the fact that for many of us, getting an audience to even skim our pre-read materials in advance of a meeting is a minor victory. Pre-reads are tricky. Just ask anyone who has started a meeting by asking the audience if they reviewed the slides, charts, or documents that were painstakingly crafted and shared in advance. Cue the awkward silence, as audience members explain how they were too busy, they just didn’t have time to get to it, so could you please walk through the pre-read materials now, blah, blah, blah. On the other hand, you may have one or two colleagues that seem to enjoy poring over your pre-reads, ready with their tough questions when the meeting time comes. Let’s appreciate the thoroughness of these individuals, rather than wish they were more like everyone else who just ignored the pre-reads in the first place.

Done right, pre-reads play a valuable role for leaders and teams to lead productive meetings. They provide important background and context, enabling meeting leaders to make well-informed decisions and engage in productive, strategic discussions far more efficiently.

How do we consistently create these types of meeting outcomes? Here are some simple principles to consider:

Always link the pre-read to the meeting purpose and desired outcomes. A CFO and his team had scheduled an important meeting with the CEO and executive leadership to determine future capital expenditures at the company. In advance, the team prepared a detailed set of materials for the senior leaders to review, including a 60-page document that contained important information that would be relevant to the discussion. Knowing that the meeting would not succeed unless the executives had thoroughly reviewed the document in advance, the team prepared a short note to accompany the pre-read that reminded the audience of the purpose of the upcoming meeting, the relevance of that purpose to the audience, and the role the pre-read materials would play in achieving that purpose. The simple note paid off when company executives told the finance team it was one of the best meetings any team had ever led at the company.

As the CFO shared: “The note made such a difference. Too often, we assume the purpose of the pre-read is obvious, but we must make the connection clear to the audience. It isn’t enough to send slides in advance. If you really want people to read them and absorb the information, provide a compelling reason. We learned that by saying, ‘If you read these, we’ll achieve something important together,’ made all the difference.”

Make it very easy for your audiences to be prepared. Let’s imagine that you were part of the audience described by the CFO in the above example. No matter how compelling the note and materials provided in advance of the meeting, there’s no getting around the fact that you’ve been asked to read and absorb a 60-page document. For your average senior leader, it’s challenging to find the time to prepare for meetings and one of the biggest reasons that pre-read materials don’t get the attention they deserve.

Here’s where you can help your audiences. Provide questions and answers. This easy step can be a game-changer when done right. One simple technique is to raise a few relevant questions in a short email to your audience in advance of your meeting that includes your pre-read. For example:

• What is the overall purpose of the project?
• What do we want to accomplish in our meeting?
• What role will the pre-reads play in accomplishing that objective?
• How are the pre-reads structured to enable our discussion?
• What role will you play?

Don’t forget to provide simple, bullet-point responses to your questions as part of your note. The question-and-answer format is a powerful combination that helps you set the stage for your meeting by guiding participants in advance. You’re not just sending an agenda with an attachment: You’re taking charge and helping your audience understand how to show up prepared and ready to engage in a very productive discussion with you.

Good pre-reads take time to create, and even outstanding materials may get overlooked because the value they provide may not be immediately obvious to your audiences. The moral of the story? Don’t let your efforts go to waste. Good information provided in advance of meetings leads to better discussions and smarter decisions, but those outcomes won’t just happen on their own. With a few small tweaks to your pre-meeting process, you can achieve far better post-meeting results.