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strategy and business
 / Summer 2009 / Issue 55(originally published by Booz & Company)


CEO Succession 2008: Stability in the Storm

2. Establish priorities. Almost immediately, a new CEO should set forth the three or four agenda items that will drive the strategic direction of the company over the next two to three years. That direction is all the more critical in the current recession.

Today’s CEOs should assess their portfolio of businesses and concentrate on those where they have a “right to win,” which we define as the advantaged assets and capabilities (tools, processes, people) that enable a company to out-execute the competition. This assessment boils down to two primary questions: (a) Is this business core to our company’s future value? (b) Does it offer a path to building financial performance that is greater than what investors can earn elsewhere in their equity portfolios? To weather the current downturn, CEOs need to anticipate their industry’s future structure and develop a game plan for securing the best competitive positioning in the upturn.

Avoid the temptation to make too many decisions too soon. Some issues will take time to percolate under new leadership or may require more considered deliberation — or perhaps none at all. New CEOs, in general, need to delegate more and second-guess less.

3. Affirm or change the team. In the first 60 days, a new CEO needs to reassure those members of the senior team who will make the cut, and deliver the bad news to those who won’t, even if their successors have not yet been identified. Until people know where they stand, it will be hard, if not impossible, to move forward productively. And there is little value in retaining business unit heads or functional leaders who are destined for replacement. The damage they may do as they await their fate can far outweigh any benefit their presence might provide.

Once new CEOs identify the top team, they can start on the real work of aligning team members around their agenda. Most CEOs occupy the center of a hub-and-spoke model with regard to their direct reports; these business and functional leaders have a direct line to the CEO, but little contact with one another. Creating a sense of collective ownership of the new strategic direction of the enterprise is vital if the new CEO wants to leverage his or her direct reports’ full potential as a team. Joint accountability also reduces silo-based behavior on an executive team, and it enables new CEOs to assess whether they made the right decisions about whom to keep on board.

4. Establish boundaries. Everyone wants the CEO’s time and attention. Although intellectually, new CEOs may appreciate this maxim, very few are prepared for the reality. According to our research, 80 percent of a CEO’s day is consumed in meetings; visits with clients; and symbolic, ceremonial events. Only one-fifth of his or her business day is actually spent behind a desk.

Those who have never served as CEO before can find the transition to public figure quite uncomfortable. They marvel at how unfamiliar many of their duties are, even though they likely ran a business prior to becoming CEO. The ones who flourish establish clear boundaries and delegate all but mission-critical tasks.

5. Keep an ear to the market. One new CEO in the oil retailing business joked that “every gas station I visit smells of fresh paint.” Indeed, everything is varnished for the chief executive; it becomes very hard to learn of bad news, because no one will volunteer it.

Since everyone inside the organization is currying favor with them, new CEOs should spend time with customers. Customers are the most likely to provide straightforward commentary on the company, and a new CEO needs that source of objective counsel. Making a point of visiting with customers also sends a powerful and positive message to others in the organization that customer service is a priority.

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  1. Corporate Leadership Council, “Creating Talent Champions, Volume I” (2008) and “Hallmarks of Leadership Success” (2003), Corporate Executive Board: The source of research on leadership development.
  2. Cyrus Friedheim, “Commit and Deliver,” s+b, Spring 2006: Reflections on the challenges of being an incoming CEO.
  3. Per-Ola Karlsson, Gary Neilson, and Juan Carlos Webster, “CEO Succession 2007: The Performance Paradox,” s+b, Summer 2008: Last year’s study shows that even those chief executives who deliver subpar returns show unexpected staying power.
  4. Thomas Neff and Julie Hembrock Daum, “The Empty Boardroom,” s+b, Summer 2007: The most desirable board members have always been those with CEO experience, but they’re in short supply.
  5. For more business thought leadership, sign up for s+b’s RSS feed.
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