CEO Derailment: The Warning Signs, Succession Pitfalls Part 1
This is the first of a four-part series examining the topic of CEO succession, and how to beat the odds when it comes to succeeding in a new executive role. In this initial article, we explore warning signs of CEO derailment and how to course-correct to help CEOs transition with success.
FMI estimates that approximately 50% of constructions firms will go through an ownership and management transition in the next 10 years[i]. According to a study done by the National Association of Corporate Directors (NACD), two-thirds of U.S. public and private companies admitted having no formal CEO succession plan in place. Furthermore, of those companies with a plan in place, only one-third are satisfied with their current transition plan[ii]. In another recent study, 45% of U.S. led companies experienced a transition failure – a rate that implies far too many succession plans are collapsing[iii]. All too often the predominant factor determining success during these transitions is the ability for the new CEO to effectively move from senior management to enterprise leadership. To catch CEOs before derailment, we have highlighted three common warning signs associated with early stages of a transition.
Warning Sign #1: The new CEO continues to invest most of their time on business development, operational minutia, or fostering external relationships instead of thinking about the organization’s long-term trajectory and challenging the organization to act on established strategies.
Underlying Issue: The new CEO does not understand what strong CEO leadership looks like. In the E&C industry, this commonly entails a large focus on executing on work or getting new work versus focusing on the future direction of the business and leading others to execute on the vision. Regardless, any deficiency can derail a new leader. These leadership deficiencies may be derived from a new CEO’s worldview concerning how he/she provides value to the organization.
Remedy: The new CEO must have a full understanding of what his or her role entails. The board members, management team, and ex-CEO should define the role requirements, technical skills, minimum qualifications and required competencies through the development of a Peak Profile for the CEO’s position. Utilizing the Peak Profile, the new CEO gains understanding around his or her current leadership gaps and can undergo further coaching to help understand where their time and energy is best spent for long-term organizational health.
Warning Sign #2: Operational leaders “go around” the new CEO to the ex-CEO for help when making key business decisions or handling issues with high profile projects.
Underlying Issue: The new CEO may lack critical competencies needed for the role. This could include a lack of understanding around how things really get done in the business such as knowing the right influencers and understanding the politics in the organization, not having built enough relationships or respect amongst others in the organization, or lacking deep operational understanding across the entire business vs. expertise in one functional area or practice.
Remedy: The CEO must understand the importance of networking across the organization and developing a deep understanding of business operations if he or she is lacking there. Additionally, the ex-CEO is a critical player in this case and he or she should encourage operational leaders to work directly with the current CEO through challenges. Tracking the situations in which operational leaders go to him or her and sharing this feedback with the current CEO is also an opportunity for the ex-CEO to actively mentor and coach the new CEO.
Warning Sign #3: The new CEO seems to have few true followers or champions. Previously engaged senior leaders seem less driven or present in meetings and group forums.
Underlying Issue: A number of issues may be present that are reducing senior leader engagement and support for the new CEO. Poor transition planning or a lack of objective succession processes may have left senior leaders resentful of the new CEO. There may also be issues at play with the new CEO and how he or she engages the senior leadership team. Does he or she engage ideas, encourage debate and discourse? Or does the new CEO dominate the discussion, leaving little room for others’ thoughts? New CEOs who think they have all the answers rapidly reduce the engagement and trust of their followers.
Remedy: Like any major change in an organization, selecting a new CEO requires careful planning, direct communication and thoughtful processes. A doubting group of followers may put a new CEO on the defense to prove their competence. If the new CEO has lost the trust or support of their followers, it is critical to engage the management team in meaningful ways, carefully listening to input instead of dominating discussions or decisions.
Many new CEOs experience a steep learning curve and the transition is filled with more turbulence than expected. A worst-case scenario entails a leader with limited effectiveness causing damage to the organization and a continual rotation of successive CEOs. Frequent interactions between the new CEO, board members, the management team, and the ex-CEO can mitigate the new CEO’s risk of falling into the pitfalls associated with transitions.
CEO transitions are abundant with possibilities for positive change as well as risks that can stall organizational progress. Succession plans are not finished once the new CEO has been selected. The handling of the CEO transition often determines whether the new CEO succeeds or fails. Spotting early warning signs will ensure the new CEO is on track and successfully moves from senior management to enterprise leadership, enabling the organization to grow, transition and thrive.
[i] BusinessWire
[ii] NACD
[iii] Forbes
