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Published: May 24, 2012
 / Summer 2012 / Issue 67

 
 

CEO Succession 2011: The New CEO’s First Year

1. Deal with the obvious executive changes early. The conditions under which newly appointed CEOs take control vary enormously: Their new company may be in trouble or perfectly steady. The previous CEO may have been dismissed for underperforming or recently elevated to the chairmanship. Or the changeover may be the result of a merger or acquisition, and fraught with postmerger integration challenges. Whatever the situation, there will likely be executives who have their own agenda, and one or two who may begrudge having been passed over for the top spot, or whose presence is simply no longer required. As every CEO we spoke to noted, it is critical to deal with these executives early.

For Andre-Michel Ballester, the insider CEO of Sorin Group, a Milan-based maker of medical devices, moving quickly was vital — his immediate task was to restructure the unprofitable company, selling two of five divisions and creating a dramatically different corporate culture as soon as possible. “The first issue is to create a leadership team very quickly, making decisions on who are the keepers and who are the leavers in the first few weeks,” says Ballester.

Once these vital early decisions have been made, new CEOs should spend the rest of the first year putting together the team of top executives with whom they can work, and who will provide the support necessary as the company’s ongoing strategy is refined or changed.

2. Be wary of changing strategy too quickly, even if you think the current strategy is wrong. The temptation for new CEOs to put their own stamp on their company can be strong. Resist it, said many of the CEOs we spoke to. Take the time to make sure the company is on a sound footing before sending it off in a new direction.

That was the approach taken by Ronnie Leten when he became CEO of Swedish equipment manufacturer Atlas Copco in 2009, in the midst of the economic downturn. “My first thought on becoming CEO,” he says, “was to make sure we kept going, kept visiting the customers, safeguarded the business, and saved all the areas that needed to be saved.” Leten knew he had some restructuring to do to adapt to the new circumstances, but he didn’t want to confuse the organization. His advice: “Don’t jump to conclusions immediately. Take the time to look around so you can get a full overview of the entire situation.”

As first-year CEOs move to develop strategy, they should take the time to look forward three to five years, to what the company, and its markets, might look like then. Doing so will allow them to think in terms of confirming or resetting its strategic direction, and then to determine both the set of capabilities the company will need to give it the right to win in its chosen markets and how to build those capabilities. “Strategy should be thought of simply,” says Osman Sultan, CEO of du, the United Arab Emirates telecommunications company. “Where are we today, and where do we want to go?” And once you’ve taken the time needed to develop your strategic direction, don’t waver; rather, communicate with conviction your vision of where the company should be headed.

3. Make sure you understand how every part of the company operates, and how it is performing. New CEOs, even if they are insiders, are unlikely to be intimately familiar with the entire organization, particularly in the largest companies. So it is critical that they begin learning about and analyzing every part of the company early on in their first year. This will allow them to think about making any necessary changes to the leadership team, and to get a head start on developing the strategies and building the capabilities that will be needed to move the company forward.

 
 
 
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Resources

  1. Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, “The Four Types of CEOs,” s+b, Summer 2011: Last year’s study suggested that the nature of the CEO’s job varies with the role of the corporate core — and that the more involved headquarters is in operational decision making in any given company, the more fragile the CEO’s tenure is likely to be.
  2. Ken Favaro, Per-Ola Karlsson, Jon Katzenbach, and Gary L. Neilson, “Lessons from the Trenches for New CEOs: Separating Myths from Game Changers,” Booz & Company white paper, January 2010: The practices that will substantially contribute to success for new CEOs.
  3. Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, “CEO Succession 2000–2009: A Decade of Convergence and Compression,” s+b, Summer 2010: This study documented a decade’s worth of CEO succession trends and noted how governance norms are converging and the job of the CEO is compressing, in terms of both tenure and capacity.
  4. Gary L. Neilson and Julie Wulf, “How Many Direct Reports?Harvard Business Review, April 2012: An author of this article and a Harvard Business School professor discuss why the CEO’s average span of control, measured by the number of direct reports, has doubled, rising from about five in the mid-1980s to almost 10 in the mid-2000s.
  5. For more thought leadership on this topic, see the s+b website at: strategy-business.com/strategy_and_leadership and the Booz & Company website at: booz.com/global/home/what_we_think/featured_content/ceo_succession.
 
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