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


CEO Succession 2008: Stability in the Storm

By the same token, new CEOs should meet with their most important suppliers and partners and proactively build relationships with the financial community. Investors, lenders, financial analysts, and others can help CEOs understand the capital markets’ view of their company and their priorities and concerns.

6. Get to know the unknown. This counsel especially applies to outsider CEOs, but many insiders also have gaps in their knowledge of the company’s operations and key value drivers. New CEOs are given a free pass during their initial months to take a “tutorial.” They can and should leverage internal authorities and seek out external experts who know the industry and company.

CEOs should also surround themselves with individuals whose critical capabilities complement their own. And they should ask questions. New chief executives who have “grown up in” the organization and long anticipated serving as CEO have a tendency to declare their point of view early in discussions, not fully realizing that their view is now taken as company strategy. It can be beneficial to step back in discussions and solicit others’ opinions and views.

7. Engage the board. Chief executives who are new to the role need to understand the board’s expectations, and in fact to help set them. Then they must deliver against those expectations in big and small ways.

As our CEO succession studies over the years have revealed, boards are much more active these days. To develop a strong working relationship, a new CEO should initiate one-on-one meetings with each board member at a place and time of the board member’s choosing. Simply encouraging board directors to reach out with suggestions or comments does not generate the same level of preparedness or thoughtful input as requesting a personal meeting.

Rather than asking the board to endorse what has already been decided, CEOs should present problems and solicit the board’s input on possible solutions. Boards are more helpful and supportive when they can see the drivers of company performance more clearly. To facilitate this, many CEOs invite board members to investor meetings or analyst conference calls.

One new CEO decided to have business unit heads present to the board directly. This gave the board a better take on upcoming leadership talent, including that of potential future CEOs.

Safe Harbor in the Storm

CEOs today find themselves in the eye of the storm. Although our study points to stability at the top of the world’s leading organizations in terms of chief executive turnover, that stability is in large measure a direct result of crisis. Boards process many variables in making CEO succession decisions, and context carries great weight. Companies across industries and regions are contending with depressed markets for their goods and services and collapsed stock prices. There’s a strong argument for not rocking the boat in roiling waters.

CEOs today need to guide their enterprises through the downturn, while seizing the opportunity to position their companies for long-term success. A key element in that transformation will be establishing a talent management strategy that develops future CEOs capable of leading diverse, multigenerational, and multicultural workforces. This storm will eventually pass, but the waves of change will continue to swell.

Building a Stronger Leadership Bench
by DeAnne Aguirre and Laird Post

In the present global economy, the challenge of developing leadership talent is urgent — particularly for the next generation of CEOs. The economic recession has highlighted the differences in the quality of leadership talent, especially in the most volatile industries, and underlined just how important it is to have a strong and deep leadership bench. In research conducted by Booz & Company, and by the Corporate Leadership Council, the effectiveness of leadership development is strongly correlated with profitability and total shareholder returns. And insider CEOs (those who have come up through the organization they now lead) generate higher total shareholder returns, which further argues for cultivating future CEO talent in-house.

Unfortunately, even where leadership development models exist, they remain mired in 20th-century assumptions about how, where, and by whom work gets done. The old ideals of highly structured hierarchies and 9-to-5 workdays no longer apply when many baby boomers (currently in their late 40s, 50s, and early 60s) are planning “never to retire,” or when Generation Y (currently in their teens and 20s) is moving through the workforce with expectations of flexible and socially conscious careers. Some members of this latter group will become the prominent business leaders of 2020 and beyond.

Profound demographic shifts already in motion will make over the employee base — and, increasingly, the executive teams — at many companies. Only 22 percent of the global educated workforce (those with a college or advanced degree) are from North America and western Europe. Women, barely present on corporate payrolls 30 years ago, now constitute at least half of the overall workforce in many developed countries. A corporation’s leadership development strategies should address the complexities of managing an increasingly diverse, multigenerational, and multicultural workforce characterized by different motivators and expectations.

What, then, constitutes an effective approach to developing the next generation of CEOs — and other high-level executive talent — from the inside? First, don’t leave it to HR alone. Leadership development must be led by all leaders. Senior management, up to and including the CEO, needs to help conceptualize, craft, and deliver leadership programs, tools, experiences, and messages. These should be carefully integrated with the business strategy, always grounded in a business case for why an enhanced leadership capability is required, what outcomes will result from leadership development, and what it will take to deliver them.

It is also important to engage the board in the process, because they ultimately own the outcome of the leadership development process. As the stewards of CEO succession, they have a vested interest in ensuring that candidates for critical enterprise roles are identified and that leaders receive the right developmental experiences, including engagement with the board.

Successful CEOs often spend the equivalent of more than a day a week making decisions about people — whom to promote, deploy, and develop, and what resources to devote to leadership development. They also spend significant time observing, coaching, and learning from their senior management team. There is no substitute for one-on-one time in crafting a tailored development program for potential successors, and this time also equips the CEO with valuable insights from those closer to customers.

This intensive leadership development approach works best when it is integrated with other HR processes, including recruiting, identification of “high potentials,” career path planning, compensation, performance management, and promotion decisions. High-potential leaders should undergo a variety of developmental experiences: general management experience, cross-functional opportunities, global experience, and opportunities to manage change and develop other talent themselves. That said, leadership development should not focus on building “renaissance” individuals who have been rotated through a battery of rapid-fire assignments and programs designed to orient them to every part of the organization’s operations. It is better to plot the career development of high-potential men and women as a diverse but well-chosen set of challenges — defining experiences that can build the distinctive, competitively differentiating capabilities that leaders, and the company, will need.

  • DeAnne Aguirre is a senior partner with Booz & Company and has served global clients for the past 20 years. She specializes in talent strategies and effectiveness and is the global co-leader of Booz & Company’s Global Talent Innovation offering.
  • Laird Post is a principal with Booz & Company based in San Francisco. He advises organizations in the U.S. and globally on people, leadership, and change effectiveness.
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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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