The Importance of Choosing the Right Chief Executive Officer

From startup to Fortune 500 company, the chief executive role is the most demanding.  In the last two decades, around 20% to a quarter of all CEO departures were not voluntary.  They were either forced out or outright fired.  These CEO turnovers are expensive, costing companies thousands in compensation packages, and remuneration for their replacements.  According to a 2014 PwC study of the world’s 2,500 largest companies, these dismissals cost shareholders around US$112 billion in lost market value annually.  These constant turnovers discourage capable people from stepping up to the C-suite, and impact directors involved in the recruitment and firing process.  This is never an easy thing to do. 

Part of that problem is that we often have unrealistic expectations of the CEO.  We tend to model them on people like Steve Jobs, Elon Musks, Jeff Bezos, and Bill Gates of the world, without considering the fact that the vast majority of competent CEOs do not fit this stereotype, and that is a good thing.  We do not need these characters in every industry or culture.  It would be a terrible fit.  Not every CEO should be a graduate from Harvard, and a charismatic visionary, who is dynamic, photogenic, and tall, making tough decisions in dramatic environments. 

In appointing a CEO, there are certain foundational attributes that every candidate should have, and others that could be emphasised, specific to the needs of the company.  We must consider that these qualities may not necessarily be the ones that boards are enamoured by.  For example, a lot of board recruitment committees are taken in by candidates who exhibit confidence and charisma.  That is a skill in personal relationships; it has little to do with actual skills in management and leadership needed for a CEO.  Another skill that boards look for, is the ability to speak well in public.  It is an important skill, but by itself, does not make the candidate an effective communicator, since much of communication also involves the ability to listen and discern the underlying message.  This is another example of falling for flair, as opposed to substance. 

A CEO is someone hired to exercise leadership first, then management.  This seems paradoxical, but a business environment is dynamic.  To be paralysed by indecision is fatal.  However, keeping things moving, and making decisions quickly, as information comes in, means that someone who practices this habit is likely to make better judgement calls in time.  It is the same principal as a platoon leader under fire,  The platoon looks to him in a crisis, and he needs to keep them moving, giving them a direction, and not allow indecision and chaos to creep in.  Not moving is worse than moving in the wrong direction.  An effective CEO makes a decision, and if that decision is wrong, the management can correct it, and redirect momentum.  This is a skill to be exercised at a tactical level, not a strategic one.  A company that makes snap decisions on a strategic level will fail regardless. 

Not only must these decisions be made quickly, but they have to be made with firm conviction and commitment.  A quick decision made without conviction is no decision, and breeds to same level of insecurity.  This requires a CEO who can think quickly, and take in a lot of complex information, process it, and formulate a direction.  As these series of decisions get cascaded down, the rest of the management team will interpret it for their level.  The key is to keep that momentum. 

CEOs who take the time to make decisions over every little thing will likely make the correct decision, but by the time it is implemented, the situation as moved on, and these decisions become the wrong ones.  This creates bottlenecks and the company is always behind the curve.  Slow decision makers cost the company since inertia is directly corelated with the attrition of talent.  This creates a feedback loop that damages morale.  That has a negative impact on relationships with internal and external clients.  This will eventually affect goodwill and market share.  It is not one slow decision, but a series of slow decision making with creates a culture of uncertainty. 

This does not, of course, apply to every tactical decision.  This also ties in with empowerment.  Some decision can wait.  Some should be delegated down the hierarchy to a more local level.  Some should be made because the cost of inaction is higher than the cost of rectification.  There is that fine line between being decisive, and being rash. 

The second foundational attribute pertains to organisational development.  A good CEO is able to identify all stakeholders in any initiative and decision, and is able to get their buy in.  Too many CEOs are myopically focused on creating immediate shareholder value, which prioritises short-termism.  The primary stakeholder of a successful company is not the shareholders.  Shareholders own an equity stake in the company.  They put in the money.  Talent is what makes a business grow.  The staff need to be developed, and nurtured.  It is a lot easier to replace shareholders than talent. 

That CEO must be able to articulate what is in it for every stakeholder at every level, and then prioritise them, so that these needs can be addressed.  When people feel enfranchised and accounted for, they are stakeholders in the success of the company.  This requires the ability to balance needs and interests, as well as articulate the different positions as one of them.  Many CEOs can speak well, but they are only able to talk down or talk to peers.  This requires communication skills beyond that. 

In an age of social media, activist investors, and engaged consumers, it is important that a CEO is able to engage all these stakeholders at their level, carefully controlling the message.  This is about saying just enough.  There is great danger in the stary gesture, or ill-advised word, which is difficult, and may be expensive to address.  All this, must be done under pressure.  A CEO who breaks character when questioned, or when there is stakeholder pushback, is not the CEO that would last. 

This skill is not done by pandering or being populist.  On the contrary, it diminishes the credibility of the message.  It is done through a sense of certainty borne out of making quick decisions at a tactical level.  Stakeholders must believe that he is credible.  This requires the ability to give every stakeholder group a sense that they have a voice, but not give them all a vote.  The purpose is to gain the illusion of consensus without devolving into some form of democracy.  Companies are, by their nature, hierarchical, and to an extent, authoritarian.  Success is driven by quick decision making with stakeholder buy in, not a genuine consensus of every issue.  That would be inefficient. 

Authoritarian lone wolf type CEOs are only necessary when a company is not healthy, and needs to navigate a crisis.  The board has prioritised immediate survival over all other matters.  There will be internal collateral damage, from the loss of talent, to downsizing, to cost cutting on a massive scale.  They are not good for morale, or long-term growth.  A healthy company should stay away from these types, not embrace them. 

Thirdly, a good CEO is not merely adaptive, but able to foresee the consequences of events that affect market access, product viability, and other aspects of the company, and adapt to those conditions before they are fully realised.  In this era, it is about adapting to changes in consumer behaviour brought about by pandemic lockdown measures, by changes in supply chains due to developing geopolitical considerations such as the renewed superpower rivalry, and to changes in government policy due to concerns of climate change; for example. 

This means a CEO is someone who prioritises the long-term development of the company and its business over more immediate concerns.  Short-term goals should be addressed by middle management.  They should be empowered by the tools of the business, by the strategic direction of the board, and by the vision articulated by the CEO.  Unless it is a major decision impacting the fundamentals of the business, the CEO has little reason getting involved in decisions at this level beyond being informed. 

Focusing more on the long-term also means accepting that there will be mistakes, missteps and setbacks in the short-term.  Middle and lower management do not have all the information.  They certainly do not have the strategic experience.  There will be consequence and short-term loss.  These should be embraced as learning points, and opportunities to improve.  If subordinates are censured for every mistake, they will be averse to making quick decisions, and the CEO will end up spending more time making decisions at this level.  This would be a failure of leadership. 

Finally, it is less important to have a CEO who delivers spectacular results every now and then, than it is to have one who delivers reliably all the time, even if that means hitting the target and nothing more.  The market likes reliability.  Reliability is predictable.  Predictability assures the market, from consumers to shareholders to strategic partners to creditors. 

This reliability begins with the small things: keeping commitments, adhering to promises and agreements, meeting targets at a departmental level, even something as simple as being consistently punctual.  How we do the small things is how we manage the larger ones.  A company can tolerate brilliant mavericks at departmental level.  It cannot do so for top management.  These attributes also point to strong organisational skills, the ability to create and manage systems, the ability to create replicable results that lower management can follow, and having a sense of accountability that is contagious. 

A CEO runs a team.  The values they exhibit reflect in the people they choose for their team.  Getting a CEO with the right attributes also means having a team put in place with similar values.  This means replacing the wrong CEO also requires replacing the team he put in place, which is an added cost.  Getting the right CEO after the ouster of a non-performer may not deliver results in the near term because it takes a considerable amount of time and effort to put in place a new team to support the new CEO.  A good CEO must have an eye for the right people for his team. 

Choosing the correct CEO is the most important decision any board can make, and it is the same whether that board is for a startup or for an established MNC.  The right fit guarantees success, while the wrong fit guarantees cost.