Slowing Down CEO Churn
August 18 2011 by John P. Schuster
What do Boston Scientific, Papa John’s International Inc. and Pfizer have in common? They all have seen the departure of a CEO recently. Unfortunately, these companies aren’t alone and the stints are getting shorter. In fact, they are part of an increasing trend where the CEO tenure has become shorter and more intense than ever before.
Several studies, including Booz & Co.’s CEO Succession 2000-2009: A Decade of Convergence and Compression identify that CEO churn continues on the upswing. According to the study, as the time in the CEO job is getting “shorter and more intense, the margin for error or underperformance is narrow, and the role of CEO increasingly excludes the job of also being chairman.” The good news is that the opportunities for strategic dialogue with the chairman are on the increase.
To be sure, such rapid turnover increases share volatility and significantly destabilizes the corporate culture. These outcomes can often be the undoing for a corporate board. There are, of course, positive destabilizations. Ford’s board of directors looks brilliant for choosing Alan Mulllaly. But when they are minor disasters, colossal flame outs, or appointments that conclude with only small amounts of added value, destabilizing the enterprise comes at great cost.
What is causing the CEO churn? Of course there is no one reason, but more likely a combination of circumstances. Perhaps most obvious is the sheer pace of the game and the increasing complexities at the top. What element of business, or life for that matter, has not gotten shorter cycle times in the last 10 years? Like players switching teams, CEOs leave and boards switch out their CEOs more quickly and often than in the past. It could be for unfortunate reasons like sexual harassment allegations or for good reasons, like underperformance.
Whatever the causes, the impact of such turnover at the top is usually grave. Shareholders wonder what is coming next. Many C-suite executives will be switched out as the loyal lieutenants are brought in with a new hire. No doubt, these changes destabilize the rest of the organization for the near future. Finally, employee engagement sags when corporate strategy keeps changing. Certainly meaningful results are difficult to deliver.
Despite the tumult that comes with turnover of the top brass, there are things that the board of directors and the CEO can do minimize the impact. For the board’s part, each director can pay close attention to how the company’s employees—all through the ranks up through the top team–perceives the CEO (they will hear directly from shareholders and the analysts as a matter of course). Most employee engagement/culture surveys can get at this factor of the internal reputation of the CEO. Of course, being the CEO is not a popularity contest and if the job is raising standards and making unpopular decisions, take into account the anger factor in the surveys and give the CEO extra time.
I was called in as a mentor for a CEO just on this point. An otherwise high performing CEO was viewed as dangerously aloof from the culture, even though he was five years into his CEO role with this healthcare company with 100,000 customers and steadily growing revenues. The danger, as perceived by the board looking at culture data, was that the strategy would not be executable because of the rift in CEO thinking and the C-suite team and lower layers’ doing. The CEO turned it around—it took many months—not without hard work and some new communication practices. But it has paid off big time as increased profits and improved culture scores captured the enterprise’s leanness, and increased capability for execution.
The CEO can also take steps to minimize the chances of a crash and burn out of the corner office. Specifically, there are four tips that can help turn the tides.
- Create a learning plan: Driving for results can cause the CEO to forget how important it is to keep on learning. Thought leadership happens when leaders take time to learn either through reading, industry forums or just networking. It is time to reflect on the fast-paced experiences the CEO is having so he or she does not miss the lessons embedded in daily interactions and decisions. A good mentor or coach will slow the CEO down enough to make sure this experiential learning happens.Almost every CEO my colleagues and I have coached reports that the “slowing down to learn” factor of these one-on-one relationships is the key to making them work.
- Get some fresh feedback: This can come from the board, the team, or observant colleagues. CEO’s are often isolated in fortresses of their own charisma, busy-ness, and perceived power. The emperor wears no clothes because the position can be unapproachable. It’s important that the CEO doesn’t go through the latest 360 feedback process from HR as a routine. They need to use the feedback and look at it with fresh eyes. It may save them from themselves.A recent case was with the CEO of a large sales-driven organization in financial services. When he received data from the feedback from his regional VP’s that he was not playing it big enough in the large group settings, he put a lot more juice into his presentation style with humor and with colorful stories about himself, all of which changed his image for the better with the field. We know it did because we checked out the feedback.
- Make your fears your agenda: Some CEO’s, with amped-up extraverted personalities, are uber-confident and dictate the terms of events and conversations all day long. Most are not: they care about the thoughts of the people around them, and can even have a hard time giving tough feedback, or entertain doubts about their decisions, especially in tough times. Many a leader I have worked with has a ton of courage with new strategy, or working with board, and are cowardly lions on making even little style changes, like listening better, or giving up control and delegating more effectively, or confronting a board member. CEOs need to make courage their companion, especially in the areas where they have natural fears.One CEO I worked with had to give the company chairman negative feedback on another member of the management team, and because he was loyal to a fault, he could barely make himself have the conversation. When he finally did, he was assured by the chairman that it had been the right thing to do. Looking back, he was surprised at his own reluctance. We spoke of what other fears he may have that could inhibit him from having the right kind of conversations.
- Listen to significant others: Spouses or partners may have been telling a CEO for years to change something, like their temper, for their own good. It is time to listen. The spouse or partner may be off on the context, but he or she probably knows the weak trait that can get the leader in trouble. Listen up.
CEO churn can happen for a lot or reasons. The board can sake sure they are carefully watching all the key indicators of success to help make needed course corrections. And the CEOs can be counterintuitive and wise enough to make sure they don’t become their own worst enemy.