Why Do 40% of CEOs Fail?
The debate continues about Marissa Mayer as the new CEO at Yahoo, with pundits from all sides wondering if she can hack the job as a new mom (that was last week’s blog topic) and also if her experience at Google has prepared her for the challenges she faces at Yahoo.
Somewhere along the line, I read that 40% of all CEOs fail in their first 18 months. The DealBook article went on to say that most companies don’t have well-defined criteria or process for hiring leadership roles.
This seems nuts! As a recruiter I don’t want to be part of a broken selection process that yields crappy results. I immediately started thinking about why CEOs fail and how we could make wiser choices about the senior executives we hire.
100 Reasons… and One
I don’t believe CEOs fail because they don’t have the right skills or depth of experience. Boards of Directors and leadership teams that hire dozens of people every year don’t suddenly and collectively lose their minds and bet the farm on someone completely unqualified.
No, more likely the culprit is that companies talk vaguely about what they’d like the new CEO to be instead of defining what they need to do.
We know what we want CEOs to be. It’s this stuff:
Executive talent. Executives need a broad range of talent; excelling on a few dimensions is rarely enough. A truly gifted CEO should have a good feel for selecting, motivating, and evaluating people; developing and selling a strategy; creating an inspiring culture; developing an organizational structure and management process that work for the strategy; fostering cooperation across silos; understanding and using financial measures; and an understanding of how marketing, branding, finance, production, distribution contribute to strategy.
Strategic judgment. Some people just have a flair for good judgment — whether it is an ability to identify issues, distill facts, or develop instincts to make sound strategic decisions — and others simply do not. This too, in my opinion, is something you are born with. In my field, I see many who have deep experience in branding but relatively few that have a strategic flair. It can be improved but it cannot be created.
— From “CEOs Are Born, Not Made” by David Aaker, HBR Blog Network, July 20, 2011.
Oh right. How do we objectively hire against that? We ask about past performance and go with our gut instincts.
A Better Vetting Process
Wiser hiring decision can be achieved if we push deeper: What do new CEOs need to accomplish in their first year? How will their performance be evaluated? Many companies don’t have a ready and quantifiable answer. However, goals and expectations are more telling, urgent and concrete than desired qualities.
Let me show you what I mean.
“We expect them to grow the business” is different from “We need a strategic partner for our clients.” Both may track back to the heading of strategic leadership, but the first is distinctly a hunter role, with the vision, connections and rainmaker ability to drive new growth, whereas the latter is someone with a gift for client relationship building and understanding business objectives. Hire a farmer when you need a hunter, and that person may never deliver against aggressive growth goals.
To protect against impulsive hires, the first and most important question is not How should they be? but What should they accomplish? Everybody can claim to be strategic, not everyone can or wants to grow business by 20% by year end. Setting clear goals makes it easier to describe and prioritize the qualities critical for success.
And hopefully it gives us better odds than a coin toss.
Charlatan, Coward or Clown?
That’s Step One. The next consideration is cultural fit. Does your new hire have the credentials, commitment and attitude to be embraced and respected by your team?
Admittedly, I’ve bitten off a complex and lengthy topic. Stick around. By no means is it the final word, just a jumping off point for a larger discussion. Look forward to your comments.