IMHO: One responsibility directors often forget - Not sticking around too long
OPINION: Mike O'Donnell MInstD offers his views on what boards should deliver for their organisations.
Insider CEOs are often a natural choice when companies are creating CEO succession plans: CEOs promoted from within have typically run a large division or served in the C-suite already.
They’re familiar with the organisation’s key players and culture. They’re well-versed in the direction, problems and opportunities of the business, and they’re invested in its continuing success. Through prior performance, they’ve earned a reputation for accomplishment that’s led to their promotion.
Insider CEOs are known to the board and other executives, so they’re perceived as less risky. In 2019, 79% of S&P 500 boards found the next CEO from within their ranks.
Still, insider CEOs often encounter challenges just as significant as those facing externally hired CEOs. Additionally, risk and uncertainty about the COVID-19 recovery compounds the regular challenges facing insider CEOs in 2021.
Below are six of the most common challenges to newly promoted insider CEOs, as well as best practices for addressing them. Often, it’s a combination of imagination and determination that will help surmount many challenges facing insider CEOs in 2021.
If you are considering appointing an insider CEO, have you asked them how they will deal with the following challenges?
Reputation is the first and often most immediate challenge facing the insider CEO. She’s familiar with the organisation, and the organisation is familiar with her. Naturally, there’s history: accomplishments and failures; relationships that are trusting or testy. The board, peers and employees have already formed expectations.
Best practice: The new insider CEO can make a conscious break with her old role. If her background includes finance, for instance, she can focus on areas where her credentials have yet to be established. This approach demonstrates a well-rounded orientation and skill set, and demonstrates competency in other functions of the organisation.
Demonstrating commitment to, and appreciation of, all the organisation’s functions may mean choosing a course that’s unpopular with former allies.
Those who supported the new insider CEO might consciously or unconsciously expect to benefit from his promotion. Refusing to favour any set of interests — and avoiding any perception that he does — may be a challenge. Often, he feels pride of ownership in initiatives whose success helped earn him the promotion. Temptation is strong to favour familiar causes or groups; it’s a real test of character to avoid favouritism.
Best practice: An insider CEO faced with this challenge might ask: “How would my attitude be different if I had no history here?” It’s a mental exercise that can refresh his perspective on functions, initiatives, and personalities. Regardless of in the priorities in his previous job – and regardless of the views and attitudes that went along with those priorities –the CEO works for the good of the whole company, and must detach from any past agenda.
If one were to ask any executive what they’d do if they were CEO, they’d be ready with their list of actions. Imagine, then, the new insider CEO’s dilemma: a long list of fixes informed by their former, narrower scope of responsibility.
Unlike the “perception of bias” challenge, this one concerns throwing one’s weight around: targeting the most irksome issues faced in the insider CEO’s prior position instead of adopting the farther-ranging perspective appropriate to a good CEO.
Best practice: Prioritise an objective review of all processes soon after promotion. Use this exercise as an opportunity to build relationships with executives from all functions. Ask them for their candid assessments of the organisation’s performance. Balance the views of close colleagues with the broadest possible range of new perspectives.
If the narrow viewpoint challenge is not kept in check, the insider CEO might choose to pursue fixes for all the problems on her list. She might see resolution of these problems as the quickest way to make her mark. But if too much change comes too soon, she’ll introduce the risk of change fatigue, which could limit agility if an urgent challenge were to confront the business.
Best practice: Avoid the temptation to do too much early on. Consider how rapidly the business can absorb change. Gauge the appetite for change and risk among board directors and executives. Do they want to retrench, or simply sustain current success? Keep actions in sync with these attitudes.
Many new insider CEOs have assistance from the exiting chief executive who can impart observations and knowledge about the challenges of the role. That said, any de facto “co-CEO” situation must be avoided. This is especially true when the exiting chief executive is conflicted about departure or having difficulties detaching.
Best practice: The new insider CEO must clarify the timing and approach for the exiting chief executive’s departure and ensure stakeholders are clear about who’s running the business at all times. All parties will benefit from a graceful transition. Include a celebration of the exiting chief executive’s achievements, but mark the new insider CEO’s leadership at the same time.
One of the greatest challenges facing insider CEOs in 2021 is risk and doubt about the COVID-19 recovery. CEOs are considering what comes after current outbreak conditions.
Most are already anticipating a different world once the outbreak is under control, but can’t predict changes with certainty. And while many CEOs believe that the business environment will return to pre-pandemic conditions by the end of 2021, 27% don’t foresee full recovery next year.
How does the insider CEO, faced with all the preceding challenges, define the organisation’s approach to resilience, renewal and success?
Best practice: There are several categories of concern regarding the COVID-19 recovery including communications, governance, operations, workforce welfare, strategy, risk management, culture and sustainability. Ideas are evolving as rapidly as the situation, so Diligent is constantly updating its resources for boards at diligent.com
Authors: Andrew Carrick, Diligent Vice President Asia Pacific
The article is featured in the October/November issue of Boardroom magazine