The Next CEO: Board and CEO Perspectives for Successful CEO Succession 2020050934, 2020050935, 9780367551827, 9780367557003, 9781003094777

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“A  book very much based on real life. It will help each board a lot to answer one of their key challenges: ‘How to get the right CEO.’ ” Prof. Dr. Michael Süss, Chair of the Board of Directors, OC Oerlikon “Few decisions are more critical and more challenging than CEO succession. The authors offer rich insights into how the board and the CEO need to work together to ensure a successful CEO transition.” Heiner Thorborg, Headhunter “The selection of the right CEO is by far the most important task of any corporate board. The insights provided in this excellent book give the reader a good understanding of what ‘right’ means, depending on the board’s vision of upcoming challenges. At the same time, all new CEOs and their organizations will benefit from understanding the mandate given to the new CEO. I would warmly recommend this real life–based playbook for corporate board members and CEOs anywhere.” Päivi Jokinen, Chairwoman of European Women on Boards “In The Next CEO, Keil and Zangrillo provide an insightful perspective how boards and new CEOs can beat the odds of CEO succession and turn what is one of the pivotal moments for all organizations into a success. The book is full of helpful advice for boards, new CEOs, and those supporting them.” Erwin Mayr, CEO, Wieland Werke AG

THE NEXT CEO Every year, companies spend billions of dollars in board time and headhunter fees on CEO searches. In fact, by many accounts, the selection of the next CEO is the single most important task of the board of directors. Yet, despite the huge amount of time, money, and attention given to the task, many CEO changes fail, with disastrous consequences for all concerned. With so much at stake, it is natural to ask what companies and their boards can do to increase the odds of success. Illustrated with an abundance of real-life examples from interviews with CEOs, C-suite members, members of the boards, and headhunters supporting CEO searches, The Next CEO explains how boards can improve the odds of success with CEO succession by identifying clear CEO mandates and associated CEO profiles and by selecting CEOs that are fit for purpose. It further explains how the CEOs of leading corporations effectively take charge and create results, providing a roadmap for incoming CEOs. These ideas are brought to life with case studies and interviews with well-known corporations such as ABB, Alibaba, Freudenberg, GE, Google, HNA, HP, Microsoft, Nestle, Nike, Nokia, Novartis, Roche, Sony, Tata, and Zurich Insurance. The book is invaluable practical reading for board members of medium-to-large-size firms involved with CEO succession, and for those preparing for their first CEO position. It is also relevant to headhunters who are involved in the process of CEO succession as a working tool for them and their clients. In addition, the book will be relevant to courses on corporate governance and strategic transformation at the executive and MBA levels. Thomas Keil is a professor at the University of Zurich, Switzerland, where he teaches strategy and international management. Marianna Zangrillo is a corporate leader, business angel, and investor, with experience in companies such as Nokia, Kemira, Swissport, and Infront Sports.

THE NEXT CEO

Board and CEO Perspectives for Successful CEO Succession Thomas Keil and Marianna Zangrillo

First published 2021 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 Thomas Keil and Marianna Zangrillo The right of Thomas Keil and Maria Anna Zangrillo Gallinaro to be identified as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Keil, Thomas, 1970 February 6– author. | Zangrillo, Marianna, author. Title: The next CEO : board and CEOperspectives for successful CEO succession / Thomas Keil and Marianna Zangrillo. Description: Milton Park, Abingdon, Oxon ; New York, NY : Routledge, 2021. | Includes bibliographical references and index. Identifiers: LCCN 2020050934 (print) | LCCN 2020050935 (ebook) | ISBN 9780367551827 (hardback) | ISBN 9780367557003 (paperback) | ISBN 9781003094777 (ebook) Subjects: LCSH: Chief executive officers—Selection and appointment. | Chief executive officers—Recruiting Classification: LCC HD38.2 .K464 2021 (print) | LCC HD38.2 (ebook) | DDC 658.4/2—dc23 LC record available at https://lccn.loc.gov/2020050934 LC ebook record available at https://lccn.loc.gov/2020050935 ISBN: 978-0-367-55182-7 (hbk) ISBN: 978-0-367-55700-3 (pbk) ISBN: 978-1-003-09477-7 (ebk) Typeset in Bembo by Apex CoVantage, LLC

CONTENTS

Acknowledgmentsxi Introduction Make or break CEO mandates The work of a new CEO The next act The structure of the book

1 3 5 6 7 9

PART I

Boards defining the mandate and profile for a new CEO

13

  1 Preparing for CEO selection CEO mandates Thinking strategically about the mandate CEO profiles CEO selection process

15 16 20 24 28

  2 Continuation – more of the same What are continuation mandates? When do boards choose a continuation mandate?

34 35 35

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Why internal candidates are a natural choice Common characteristics and problems with the continuation mandate

38 40

  3 Evolution – adaptation within boundaries 44 What are evolution mandates? 45 When do boards choose an evolution mandate? 46 CEO profiles: internal or external candidates? 47 Common characteristics and problems with the evolution mandate50   4 Transformation – bringing the organization to the next level What are transformation mandates? When do boards choose a transformation mandate? CEO profiles for transformation Common characteristics and problems with the transformation mandate

54 55 55 60

  5 Turnaround – breaking with the past under pressure What are turnaround mandates? When boards choose turnaround mandates The CEO profile for turnaround mandates: external CEOs – the natural choice Common characteristics and challenges with the transformation mandate

71 72 73

65

74 77

PART II

The work of a new CEO

83

  6 Mastering the strategic mandate The nature of the new CEO’s work The new CEO playbook Supporting the new CEO

85 87 88 91

  7 Taking charge The folly of the first 100 days Preparation before day one Day one: managing first impressions Listen rather than speaking: learning about the organization Early actions

94 96 98 101 104 106

contents

  8 Building a personal platform Creating a strong core team Empowering the core team Building deep networks

112 114 120 122

  9 Driving results Establishing and communicating a compelling vision An organization-wide movement for change Leadership behavior Pace of change Sequence of actions Continuous feedback and communicating progress

128 131 134 136 138 142 144

PART III

The next act

149

10 The life cycle of a CEO CEO life cycles The initial mandate Beyond the initial mandate Moving on

151 152 155 159 161

11 Sustaining the succession pipeline Developing a succession pipeline Roles in succession planning Identifying the right moment to change the CEO Succession planning in different types of companies Succeeding at talent development and CEO succession

168 169 174 176 178 181

12 The CEO of 2030 Implementing best practice Developing and being open to a truly diverse set of candidates Looking beyond linear career paths Driving analytical processes through technology

184 185 186 187 189

Bibliography193 Index203

ix

ACKNOWLEDGMENTS

This book wouldn’t have been possible without the existence of the organizations and all the CEOs and chairs who agreed to be interviewed, shared their insights, and allowed us to test our initial ideas and develop them into this book. They are so many, and while some agreed to be directly cited and some preferred to remain anonymous, every single conversation was equally valuable, and we will never be able to thank them all enough for their clear capability of doing great things for their organizations and also for their desire to advance knowledge, which is what in the end elevates humankind. We also wish to thank all those colleagues we have had the honor to lead or be led by and those whose leadership and corporate approaches we have been able to observe in the field and bring indirectly into this book, as well as all the various corporate and academic friends and acquaintances who have helped us through the years to develop our knowledge and thought leadership, which has been essential in shaping our thinking in the book. So many conversations, formal and informal, helped us become who we are and taught us what we know and how we think; without these, this book project would never even have started. First and foremost, we wish to thank a few individuals who have contributed directly in exceptional ways to the development of our ideas and the creation of the book.

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Stuart Crainer and Des Dearlove, with whom we had a first brainstorming workshop in London to shape the contents of the book and who have subsequently given us feedback on parts of the book in numerous other conversations. Their skill in making us think harder and better and in directing us to where we are today cannot be underestimated, and we will forever be thankful. Dovev Lavie and Stevo Pavicevic also helped shape the thinking that went into this book through discussion and collaboration on related projects. Stevo Pavicevic also went through the ordeal of reading the first full draft of the book, challenged our arguments, and made sure that our observations were academically solid. We are deeply grateful to you. The seeds of long-standing collaborations have given this book much more than one could tell or write. Luka Mucic, Päivi Jokinen, and Raisa Jyrkinen, who took their personal time to comment on the very first idea and book plan, gave us the confidence that this book was worth writing and, with their supportive comments, were instrumental in getting more than one publisher interested. And of course we must thank Rebecca Marsh and Sophie Peoples, whose insights, responsiveness, and extremely collaborative approach led us in the end to choose to publish with Routledge, together with Erika Lucas, who helped us improve and proofread the final version of the book. Finally, before even becoming the professionals we are, we are all individuals with a personal story to tell. And this book is one with an unusual story behind it. Many interesting projects are initiated and decisions made in informal settings, and with this book, we took that idea a long way. Most of our brainstorming around the ideas, what to say and what not to say, how to frame it, who to interview, and who to ask help from has happened around mealtimes or while hanging laundry together, while walking our dog after dinner or during our vacations. Being a couple in private life, one with a corporate role and one with an academic job, our only chance to discuss the project was in our free time. After this, we will need a long break from any new book project because, although this project has been fun, it has also been painful, especially during the COVID-19 lockdown months, when we and our three children were all at home with often complicated house dynamics. In this project we both

acknowledgments

have grown and learned so much from each other, and this book would not have been what it is without the very unusual and extremely informal setting in which it was written. The setup has also had some downsides for the children, who were at home during the lockdown and came on holiday with us when we were frantically trying to complete the first draft. Luca, Aurora, and Lucia had to sit through dinners listening to us talk about the book and saw us retreat to different rooms, both at home and during vacation, to write and make progress. They have at times even commented or provided an insight from a very naive and at times necessarily blunt perspective. Why would that CEO do or say that? That helped us go back to the basics and rethink in a more fundamental way. Thank you for having tolerated our absences and for having made the destination possible and worthwhile. Thank you for being there with your smiles, laughs, and also occasional disagreements and tantrums, to make us remember that there is always more to life than just work. Finally, to our parents, who, while having grown up themselves and raised us in different countries and settings, have taught us discipline and structure, the need to laugh together, and the respect and occasional tough love needed, especially in difficult times – all of this has helped us get this book together, as well as succeed in life. You mean the world to us.

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INTRODUCTION

A change of CEO is a pivotal moment for all companies. When a new CEO is appointed, all stakeholders brim with expectations about where the new leader will take the organization. Employees hang on to the new leader’s every word to see where the journey will lead them. Journalists wait to find out what story they can spin on the person and the company. Analysts wonder what change is in store. Customers may see their top relationship changing and consider looking elsewhere, and suppliers hope not to be replaced. And finally, shareholders await improved results. New CEOs affect the direction of the organization they join; hence, succession becomes a key variable in the company’s performance equation. Take Nestlé as an example. It is the world’s largest food company and among the 100 largest companies globally. Located in the idyllic Swiss town of Vevey at Lake Geneva, Nestlé is known for such household names as Nido milk powder, Nespresso and Nescafé coffee, Milo and Nesquik chocolate drinks, Smarties and KitKat snacks, San Pellegrino and Perrier water, and Maggi seasonings.

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Nestlé has always been a company of strong principles. Since 1922, it has been led by a succession of internally recruited CEOs. Its strategy has been focused on achieving a yearly organic growth target of 5 to 6 percent in its core food and beverage markets. However, starting from around 2015, changes in the global food industry have forced major food players like Nestlé and its competitors (e.g. Danone, Kraft Heinz, and Mondelez) to rethink their operating principles and strategy. Maintaining growth and profitability in the food industry has become increasingly difficult,1 because growth and margin have moved towards new segments such as health and wellness. For Nestlé, this has meant gradually extending its strategic focus beyond the food and beverage industries. In the words of Paul Bulcke, then CEO and current chairman of the board: “We are a food and beverage company that is extending the boundaries of nutrition because of the changing needs of society and developments in science that allow us to address those needs, so we are really evolving our strategy.” In this competitive environment, and with the upcoming retirement of then-CEO Paul Bulcke, the board under then-chairman Peter Brabeck was facing an important decision. Despite a strong pool of internal candidates, should it start a broad search for a new CEO outside Nestlé? While tradition suggested picking one of the internal candidates, each with a strong track record and deep knowledge of Nestlé’s business and culture, the changing environment suggested a broader search beyond the welltrodden path of the core food industry. To the surprise of many observers, Nestlé’s board not only chose to search broadly, but the final choice of the new CEO fell to industry outsider Mark Schneider. Schneider had pursued a career in health-related businesses, with his last station prior to joining Nestlé as CEO at the German Fresenius Group. At Fresenius during a 14-year tenure, he grew the company sales fourfold and net income twelvefold. Schneider was chosen for his expertise within the emerging health and wellness sector, as well as for his track record as an acquisition deal maker – a skill that would allow him to bring momentum to the evolution of Nestlé’s strategy. How fast would Schneider be able to impact the giant company? Would an individual, and particularly an individual without a strong network in Nestlé, be able to speed up growth and increase profitability?

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Appointed on January 1, 2017, Schneider faced an enormous task from day one. As an outsider, not only did he need to get to know the company with its 350,000-plus employees and CHF 91 billion sales and operations in 189 countries, but very soon after his appointment, he found himself under intense pressure from activist investors2 who were calling for a more aggressive strategic transformation. Yet, despite the external pressure, Schneider trod carefully and spent the first six months getting to know the company rather than taking premature actions. Only after this learning period did he start to act, evolving Nestlé’s portfolio through a series of acquisitions and divestments, all carefully designed to strengthen growth and departing from the cost-cutting strategy of many of Nestlé’s competitors.3 As a result of this continued strategic evolution, Nestlé has been one of the companies that best came through the COVID19 pandemic in 2020.

Make or break The impact of a new CEO can hardly be overstated. CEO succession can make or break any organization, and the outcomes of CEO successions vary hugely. The matter is particularly relevant because successful CEO transitions can revitalize a struggling corporation while unsuitable appointments can send a successful corporation into free fall. When Satya Nadella succeeded Steve Ballmer in 2014, he managed to save Microsoft from falling behind in the software industry. Under Ballmer, Microsoft had missed out on the mobile phone market and was not among the leaders in growth areas such as cloud computing. Following his appointment, Nadella initiated a major transformation and cultural change program. In 2019, Microsoft was back among the leaders, not only in its core business but also in cloud computing and other growth markets. Similarly, CEOs like Steve Jobs returning to Apple or Jamie Dimon at JPMorgan are often credited for the stellar success or comeback of the companies they have led. However, when CEO succession fails, billions of dollars in shareholder value are destroyed. For instance, a study by consulting company Strategy& estimates that over $100 billion is lost every year in failed CEO successions.4 Succession failure also exacts a high human cost: what was

3

4

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supposed to be the crowning moment of a long career can easily turn into a career-ending event that can destroy the reputation of the CEO, lead to the loss of thousands of jobs, and in extreme cases threaten the survival of the company. Examples of high profile failures abound. After a long and distinguished career in logistics and transportation services, in 2015 Per Utnegaard was appointed CEO of Bilfinger. The job was clearly a big challenge. Bilfinger, once Germany’s second-largest construction company, had been in financial difficulties for a number of years, and a prior CEO succession had already proved unsuccessful when Roland Koch, the former minister-president of the German state of Hesse, failed to orchestrate a turnaround. Less than a year after Utnegaard’s highly publicized appointment, he left Bilfinger, and the search for a new CEO began again. Similarly, when John Flannery was appointed CEO of GE in 2017, he could look back at a highly successful career across multiple businesses within the company. Nonetheless, after less than a year of crisis management, the board decided to replace him with Larry Culp, Jr., an outsider who had joined GE’s board only a few months earlier. Other high-profile cases of failed CEO succession include William Perez at Nike, Jonathan Lu at Alibaba, Leo Apotheker at HP, Ron Boire at Barnes and Noble, and Howard Stringer at Sony. One may ask why these experienced leaders failed in their new jobs. When we look at the statistics, we shouldn’t be surprised. CEOs come and go  – even seasoned executives with previously unblemished track records. Recent statistical analyses suggest that the median CEO tenure at Standard and Poor 500 companies has shrunk to less than five years,5 and more importantly, over 15 percent of all CEOs depart within less than two years, typically a sign of failure.6 Also, financial performance metrics such as return on assets or total shareholder return vary widely following a CEO change.7 The best laid plans – especially succession plans – often fall apart when they encounter reality. With so much at stake, it is only sensible to ask what incoming CEOs, companies, and their boards can do to increase the odds of success. This was the starting point of our work on CEO succession that led to a tenyear research project and has taken us on a global journey through the boardrooms of some of the world’s leading companies. We engaged in

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conversations with CEOs; executives reporting to them; and the chairs, directors, and headhunters hiring them, exchanging views on what works and doesn’t work in CEO succession and trying to capture the essence of their experiences. To ground what we heard in our conversations in the academic research,8 we complemented the primary research with indepth case studies of selected CEOs, research of academic literature on CEO succession, and a large-scale quantitative research program of close to 1,500 CEO successions between 2001 and 2014. Based on our research, in this book we will introduce our insights, frameworks, and tools around three key themes that revolve around the mandate of the next CEO, the work of a new CEO, and the need for both the CEO and the board to look towards the next act.

CEO mandates In the research, we were struck by just how different the mandates of new CEOs can be. While some CEOs’ task is mainly to continue implementing a long-established strategy or gradually evolving it over time, others are tasked with redirecting and transforming the company or stage a turnaround in the face of impending bankruptcy. For instance, when Gilbert Ghostine became CEO of Firmenich, the world’s largest privately owned company in the fragrance and flavor industry, he found a company with a clear and successful strategic direction. As his chairman, Patrick Firmenich, explained: His mandate for the first year and a half was to finish implementing the strategy but at the same time we wanted him to think about our strategy and in a year and a half to present us with a new strategic plan. Compare this with Erwin Mayr, the CEO of Wieland Group, a European leader in copper products based in Germany. When Mayr joined the company, Wieland was successful in the market but had been unable to fulfill its larger ambition to become a global player. Mayr therefore described his mandate as “changing the culture of Wieland” and “to awaken Wieland for global competition.”

5

6

introd u ction

Or then take Mario Greco, who turned around Italian insurance giant Generali. He told us: Generali was a company which was financially distressed, even though business-wise it was ok so what I  had to do was a classic financial turnaround. In the first year and a half, I had to restructure the debt position, sell assets to buy out minority stakes in different countries and put the company back on a stronger financial footing. One core idea of our research is therefore that at the heart of many failed CEO successions, and the huge disparity in performance following a CEO change, lies a lack of clarity about the mandate of the next CEO, which may result in choosing the wrong candidate. Worryingly, too, interviews and related research9 suggest that boards spend too little time in identifying the mandate and resulting CEO profile, and therefore, CEOs often step into the role with little direction or support. The board may be presented with a list of charismatic or successful CEOs and executives10 and may never come to actually think about the match or suitability for the mandate they will pass on to the new leader to drive. To define a clear profile to match CEO candidates against, a board needs a clear vision of the strategic challenges for the corporation in the years to come so that it can define a mandate on that basis. As Dr. Jörg Reinhardt, chairman of the board at Novartis, explained to us: “The board needs to think about whom it wants to appoint? Is there a need for stability and everything should continue as before? Or is there a need for change and the next CEO needs to drive a turnaround?” Without a clear understanding of the vision, the strategic challenges, and the path forward, which are at the core of the strategic mandate, boards are not likely to find the candidate that best matches the challenges ahead and are more likely to be swayed by characteristics of the candidate and their possibly successful past, all of which may be of little relevance for future success. In other words, in our view, there is no such thing as the best CEO candidate; rather, boards need to find the candidate that best suits the company in its current situation.

The work of a new CEO A second key insight from our research relates to the importance of how new CEOs manage the transition into the position and kick off and drive

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the mandate. The CEO position has the widest breadth possible in an organization. CEOs have oversight of all the businesses and functions the company has, and as well as staying on top of everything and showing competence in most areas, they are judged for when and how things are done. The success of the CEO’s overall mandate relies on carefully orchestrating actions across functions and businesses over time, all of which need to be successful for the puzzle of success to fall into place and the picture of the organization to be appealing to the various stakeholders. While CEOs’ strategic mandates easily span three to five years, they may be set on the road to success or failure during the first days of their tenure. The stakes for CEOs who come from outside the organization are particularly high, given stakeholder uncertainty around a new, “unknown” leader. Initial actions and reactions can make or break the future of the leader’s tenure. To be successful, new CEOs need a playbook that helps them connect all actions, starting from taking charge during the first days of their tenure all the way towards implementing the actions needed to drive results for their mandate. While research on strategic leadership has been abundant,11 insights into the role of the new CEO in driving specific mandates continue to be sparse. To be successful, new CEOs need a set of principles to guide their actions in the new role for the first few years. CEO positions are high pressure and leave very little space to make errors, in particular at the beginning of the tenure. How CEOs approach the transition, establish their position in the company, and drive results are therefore of utmost importance for the success of the mandate.

The next act Our third and final set of ideas relates to embedding the CEO succession and initial mandate into the broader context of the company’s long-term success and the CEO’s career. Both the CEOs and the boards hiring them need to plan beyond the initial mandate. CEO tenures, at least if successful, often span more than one mandate, and CEOs need to think strategically about their time in the role and what may follow. We capture this insight in the idea of a CEO life cycle.12 CEO life cycles cover the initial strategic mandate, subsequent mandates, and ultimately a period of moving on from the CEO position.

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When on the path towards successfully accomplishing the initial mandate, CEOs need to look further ahead and start to rethink the vision and the strategy. There are many examples of long-standing CEOs who have been able to successfully develop their corporations for periods exceeding, and sometimes even well beyond, ten years. For instance, Gilles Andrier has been behind the wheel at Swiss fragrances leader Givaudan for over 15 years and has been repeatedly cited among the top 100 CEOs globally. Similarly, Julian Diaz has been developing the Swiss duty-free retailer Dufry over 16 years as a global leader in its industry segment. To continue to be successful beyond the initial mandate, CEOs need to develop the ability to move beyond the initial vision, develop new capabilities, and reinvent themselves again and again. While tenure is not limited to a single mandate, the average CEO tenure today tends to be between four and six years, depending upon the industry and type of company. Therefore, even the best CEOs should plan beyond their tenure in the focal company. For some CEOs, this might mean taking on successive CEO roles, thereby becoming serial CEOs. Jan Jenisch, who moved from construction chemicals company Sika to cement industry global leader LafargeHolcim is an example of this. For others, it may mean making a shift in their career by moving from full operational and strategic responsibility to strategic or supervisory responsibility on a board. Finally, others may take an intermediary role, perhaps by becoming an investor in a private equity company or an activist investor fund. This was the path taken by Eckhard Cordes, who joined Cevian, one of Europe’s best-known activist investor funds, after leaving the CEO role at the German retail giant Metro AG. Boards also need to think beyond the individual CEO and develop a succession pipeline for the future. Boards that take their duty seriously focus on developing a succession pipeline with a strong bench of potential candidates, to ensure they have access to the right candidate for the mandate desired or needed at the time. This succession pipeline should be based on a combination of internal candidates, who have gone through a variety of carefully chosen assignments to develop the breadth necessary to lead the organization, and a potential set of external candidates who may be more suitable for some mandates.

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The structure of the book The Next CEO is designed to provide tangible and hands-on advice regarding CEO succession for board members, CEOs and aspiring CEOs, and headhunters contemplating CEO succession. Based on the three sets of ideas just introduced, the book is organized into three parts and 12 chapters. In each of the chapters, we will discuss key challenges for boards and CEOs, with the help of examples and case studies, as well as providing practical advice and tools to address these challenges. Part I, “Boards Defining the Mandate and Profile for a New CEO,” takes the board’s perspective and discusses how boards can prepare for CEO succession and define an appropriate mandate typically associated with the CEO profile. In Chapter 1, we will first introduce a framework around the four mandates and then, in Chapters 2 to 5, discuss each of the mandates and associated CEO profile in detail. Part II, “The Work of a New CEO,” shifts the discussion to how new CEOs can drive results across mandates by managing early transition, establishing a personal platform, and driving the implementation of the mandate. In Chapter 6, we introduce a CEO playbook for successful succession. Chapters 7 to 9 detail the different elements of this playbook and provide detailed advice and tools for CEOs. Finally, Part III, “The Next Act,” looks beyond the selection and initial mandate of a new CEO and discusses the broader life cycle of the CEO position (Chapter  10) and how boards can build a succession pipeline (Chapter 11). In our closing Chapter 12, we draw some conclusions on how to improve CEO succession and provide an outlook for the future.

Notes 1 Douglas Yu, “Can Kraft Heinz’s Stock Be Saved,” Forbes, September  30, 2019, www.forbes.com/sites/douglasyu/2019/09/30/how-to-save-kraftheinz-from-stock-value-decline/#5350f05b1d15; Shawn Tully, “That Brutal Cost-Cutting Won’t Save Packaged Foods,” Fortune, February  22, 2019, https://fortune.com/2019/02/22/kraft-heinz-disaster-cost-cutting/. 2 Saabira Chaudhuri and David Benoit, “Nestlé Unmoved by Demands from Activist Investor Third Point,” The Wall Street Journal, June 26, 2017, www. wsj.com/articles/nestle-unmoved-by-third-point-demands-1498480636.

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3 Corinne Gretler, “Nestle’s New CEO Challenges Food Industry’s CostCutting Mantra,” Bloomberg Quint, 2017, accessed July  6, 2020, www. bloombergquint.com/business/nestle-s-new-ceo-challenges-food-industry-scost-cutting-mantra. 4 Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, “The $112 Billion CEO Succession Problem,” Strategy+Business, no. 79 (Summer 2015), www. strategy-business.com/article/00327?gko=00328dfe00321. 5 Dan Marcec, CEO Tenure Drops to Just Five Years (New York: Equilar, 2018), www.equilar.com/blogs/351-ceo-tenure-drops-to-five-years.html. 6 Thomas Keil, Dovev Lavie, and Stevo Pavicevic, Why Do Outside CEOs Underperform? Explaining Performance Heterogeneity Following CEO Succession (Zurich: University of Zurich, 2020). 7 Timothy J. Quigley, Donald C. Hambrick, Vilmos F. Misangyi, and G. Alessandra Rizzi, “CEO Selection as Risk-Taking: A New Vantage on the Debate About the Consequences of Insiders Versus Outsiders,” Strategic Management Journal 40 (2019); Keil et al., Why Do Outside CEOs Underperform?. 8 Since this book is written for a practitioner audience and to facilitate the ease of reading, we keep the references to academic literature to a minimum and mostly focus on references to practice-oriented papers that provide additional depth on the topic. For reviews of the academic literature on the topic, see, for instance, Kristin V. D. Berns and Patricia Klarner, “A Review of the CEO Succession Literature and a Future Research Program,” Academy of Management Perspectives 31, no. 2 (2017); Robert C. Giambatista, W. Glenn Rowe, and Suhaib Riaz, “Nothing Succeeds Like Succession: A Critical Review of Leader Succession Literature Since 1994,” The Leadership Quarterly 16, no. 6 (2005); Donald J. Schepker, Youngsang Kim, Pankaj C. Patel, Sherry M. S. Thatcher, and Michael C. Campion, “CEO Succession, Strategic Change, and Post-Succession Performance: A Meta-Analysis,” Leadership Quarterly 28, no. 6 (December 2017). 9 Rakesh Khurana, “Finding the Right CEO: Why Boards Often Make Poor Choices,” MIT Sloan Management Review 43, no. 1 (2001); Donald J. Schepker, Anthony J. Nyberg, Michael D. Ulrich, and Patrick M. Wright, “Planning for Future Leadership: Procedural Rationality, Formalized Succession Processes, and CEO Influence in CEO Succession Planning,” Academy of Management Journal 61, no. 2 (2018). 10 Rakesh Khurana, “The Curse of the Superstar CEO,” Harvard Business Review 80, no. 9 (2002). 11 For a mix of practitioner and academic treatments of the subject, see, for instance, Bill George, True North: Discover Your Authentic Leadership (San

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Francisco: Jossey Bass, 2007); Sydney Finkelstein, Donald C. Hambrick, and Albert A. Cannella, Strategic Leadership: Theory and Research on Executives, Top Management Teams, and Boards (New York: Oxford University Press, 2009); James Kouzes and Barry Z. Posner, The Leadership Challenge: How to Make Extraordinary Things Happen in Organizations, 6th ed. (San Francisco, CA: Jossey-Bass, 2017); John P. Kotter, Leading Change (Boston, MA: Harvard Business Review Press, 1996). 12 James M. Citrin, Claudius A. Hildebrand, and Robert J. Stark, “The CEO Life Cycle,” Harvard Business Review 97, no. 6 (November–December 2019).

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PART I

BOARDS DEFINING THE MANDATE AND PROFILE FOR A NEW CEO

1 PREPARING FOR CEO SELECTION

2010 marked a period of turbulence for Hewlett Packard (HP), the US-based information technology giant. Mark Hurd, at that time the CEO, left the company following a scandal that involved sexual harassment charges and false expense claims.1 The chairwoman, Patricia Dunn, also left the board unexpectedly following a criminal probe into the use of private investigators. In short order, the board of HP selected Leo Apotheker, the former co-CEO of German software maker SAP, as the new CEO and Roy Lane, a venture capitalist and former software executive, as its new chairman. However, the succession did not go well. Within less than a year, and after a failed acquisition that led to multi-billion-dollar write-offs, Apotheker was forced to leave HP, and the board was again looking for a successor. As more and more information about the succession process has become public, it is clear that the CEO selection at HP left much to be desired. As an anonymous insider told the press:

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The board . . . gave no indication that they understood the tremendous change in strategy they had put under way by choosing two software experts to head HP, the world’s largest personal computer maker. . . . The board believed HP was in good shape financially and needed an executive who would keep the company running efficiently but bulk up its software business.2 Part of this narrow view may have resulted from the disengagement of the board during the selection process. The board left the selection largely to a four-member search committee, and many of the board members never interviewed Apotheker during the recruitment process. The selection of a new CEO is one of the most important, if not the most important task of the board of directors.3 However, as in the HP case, misunderstandings or outright poor preparation often dominate the selection process.4 And as a result, the choices are not well aligned with the needs of the corporation.

CEO mandates CEO positions by their nature carry a broad responsibility and should allow the leader in the CEO position substantive flexibility to set the course of the corporation. Even with such a broad power to set the direction, boards should not mistake the need for freedom in CEO roles as carte blanche not to define a clear mandate for what the CEO should accomplish. In fact, our research suggests that one of the key drivers of successful CEO succession is clarity about the CEO’s mandate. CEO mandates, albeit broad given the position, should clearly identify the strategic challenge that the organization and the CEO need to address going forward. They should be set based on a diagnosis of the situation the organization is in and a deep understanding of the strategic imperatives that arise from that situation.5 Mandates set the direction and boundaries for CEO action and will differ in the degree of change they entail, the pace and timescale of change required, and whether they are best carried out by an insider or outsider to the corporation. A clear mandate also helps to define the profile an incoming CEO needs if they are to be successful. Andreas Koopmann, former chairman of the board (2012–2020) of Swiss industrial company Georg Fischer (GF) told us:

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The most important thing is to be clear, where we think the company needs to go. And then, what person best fits to take the company there. So from the strategy comes a job profile that depends on the strategy or the phase the company is in. To find a CEO who can take the company forward to success, the board needs to define a CEO profile that fits not only the company in general but also the specific challenges of the years to come.6 This means that the same company may need very different CEOs in different stages of its life. This was emphasized in a conversation with Michael Süss, chairman of the board at OC Oerlikon, a listed technology group: One basic rule is that you often need different types of CEOs in different phases of a company’s lifecycle. At some point you need somebody who can run a reorganization. Then everything will go back to normal and you need someone who is very strongly market-oriented and can continue the work. These are rarely the same people. Clear CEO mandates are not only essential to finding the right candidate; they also provide clarity for potential candidates, who will quickly understand the expectations of the board and main shareholders and can better assess their own suitability for the role, thereby reducing the risk of surprises and misfit, as Andreas Joehle, then-CEO of medical suppliers manufacturer Paul Hartmann AG emphasized: The first question for me is to understand what does the main shareholder or the board really want? Do they want change? Because if they don’t I  am really not the right candidate. If they do want a change, then the next question is to understand the time frame. If they want a radical transformation or rather an evolutionary process. Those are completely different stories. I need to know from the outset. The extensive conversations we had with top leaders who went through the process, either to appoint or to be appointed to the role, led us to map four distinct mandates that are best addressed with specific CEO profiles

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boards defining the mandate and profile Extent of strategic change

Transformation

Turnaround

Changes strategy

Breaks inertia and initiates turnaround

Large

High discretion

Most discretion

Environment discontinuity Outside or inside CEO

Financial distress Outside CEO with limited time horizon

CEO Mandate

Evolution

Continuation Executes existing strategy Limited discretion

Small

Adapts and executes strategy Some discretion Some environment change Inside or outside CEO

Stable environment Inside CEO

Short

Long

Length of time horizon

Figure 1.1  CEO mandates

and also define the boundaries for the tasks of the incoming CEO. These mandates and the associated profiles are summarized in Figure 1.1. They differ in terms of the length of the time horizon and the degree of strategic change they involve. Continuation mandate The first mandate  – continuation – is common when boards favor the continuation of the existing strategic direction under a new CEO. Continuation mandates tend to have a short time horizon and emphasize small strategic changes – some say even strategic stasis. With this mandate, the new CEO is tasked with executing an existing strategic path that has been chosen under the predecessor, who often continues on the board, leaving limited discretion for the new CEO. To be successful, continuation mandates typically are the domain of internal candidates who not only need to fully buy into the existing strategy but must also be willing to work within a relatively tight framework set by the board. CEO profiles fitting this mandate often aim to replicate the profile of the predecessor, are focused on excellence in driving operations, and need to tightly fit the existing culture of the organization. CEOs who try to step out of this framework are likely to experience conflict with the board and frustration. Continuation mandates are often also chosen when a CEO

preparing for ceo selection

departs unexpectedly, due to death, for instance, or because the incumbent takes on a new job. In this case, internal appointments may be an interim solution with a short time horizon. Evolution mandate While the strategic stasis of the continuation mandate may be extreme, many companies and their boards desire gradual adjustments to what they perceive as a successful strategic direction. They may seek changes in how this direction is being implemented, for instance, by increasing the pace of strategy execution. Evolution mandates typically tend to have a longer time horizon yet, like the continuation mandate, emphasize relatively small strategic changes. CEOs with evolution mandates have more leeway to make changes and over time can also gradually adapt the strategy. Inside CEOs with experience in the business and the chosen strategy may seem the obvious choice for evolution mandates, yet external CEOs may also be selected based on the specific focus of the strategy evolution and the need for specific skills. CEO profiles need to balance the fit with the existing strategy and organization and the skills and independence needed for its evolution. Transformation mandate Transformation mandates require a fundamental change in the organization’s strategic direction but typically do not involve immediate financial distress. They often involve longer time periods that allow for largescale strategic and operational change. Companies may aim to lift their internationalization strategy to the next level, for example, or position their organization better for emerging opportunities in their industry. Transformation mandates offer the CEO substantial latitude to design the change around a new vision and, given the absence of short-term pressures, provide latitude to plan and implement the changes. The strong departure from the company’s past provides advantages to CEOs from outside the organization who can envision the company without past legacy. For instance, when Erwin Mayr was appointed to lead Wieland Werke, a German manufacturer of copper products, the Europe-centered company aimed to expand its geographic footprint and needed to

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restructure its organization, processes, and systems to deliver on its global ambitions. Coming from a large US-based multinational corporation, Mayr could draw on firsthand experience to help meet that objective. The specific CEO profile often emphasizes a break with the existing management rather than continuity and may differ depending upon the specific type of transformation intended. Turnaround mandate The most drastic changes are needed in turnaround mandates when largescale strategic changes are combined with a short time horizon. When boards define this mandate, the organization is often in financial distress or fundamentally misaligned with a changing environment, and the new CEO needs to take drastic action to turn the company around or break the inertia, often under strong time pressure. Turnaround mandates may be the result of years of weak management under limited board oversight. To be successful, they typically call for an external CEO and are often the domain of leaders specializing in different turnarounds who have experience with fast-paced, radical restructuring. These experienced leaders are often given wide latitude in decision-making, given the dramatic situation. In the following chapters, we will return to these four mandates and discuss in detail when boards should choose them, what CEO profiles are fitting, and what common characteristics and challenges accompany them.

Thinking strategically about the mandate Developing the CEO mandate should occur before defining a detailed profile for the CEO. To arrive at the mandates we defined, boards need to engage in a diagnosis of the company and its environment. While there is no shortage of strategic management frameworks to assist in this task,7 a good strategic diagnosis begins with an analysis of the company’s context and the situation it finds itself in; the capabilities, strengths, and weaknesses the company possesses relative to context and situation; and finally, the financial situation. These form the basis upon which the strategic ambition and ultimately the mandate can be defined.

preparing for ceo selection

Company context and situation To understand the context and situation, it is important to focus on the structural properties of the industry and consider the most important macro- and industry-level trends and their impact on the business of the company. Microsoft had been the leader in workplace software for decades. However, in the first half of the 2010s, it had increasingly fallen behind on software trends, such as cloud computing, that were transforming the software business, raising questions about whether the company had lost its ability to be an innovation leader in its industry. At the same time, hardware had become more and more important in the core mobile computing and devices industries, and Microsoft was investing aggressively in hardware through the acquisition of Nokia’s mobile phone business. When in 2013 the board started to consider a replacement for then-CEO Steve Ballmer, who had led the company for more than ten years, one of the key considerations was a diagnosis of Microsoft’s strategic position to understand which of these important trends would be most central to shaping the future of Microsoft and should therefore drive the mandate and CEO profile. Ultimately, it was this analysis that drove the choice of Satya Nadella as its next CEO. As we argued earlier, a central dimension of the identified mandates relates to the degree of departure from the current strategic status quo needed by the organization. Such departures are often driven by technological or regulatory changes that cause discontinuities in how companies compete. Examples are plentiful. The emergence of digital Fintech innovations has forced large banks and insurance companies to rethink their business models and reposition in the market. Similarly, artificial intelligence and the unexpected automation of white collar work are forcing companies in the human resource services industry to rethink their future offerings and business model. The transition from internal combustion engines to battery-powered electric vehicles will have repercussions on the viability of most companies working in the automotive sector. To define CEO mandates, boards need to understand the degree to which such new technology or new regulations may change the viability of existing strategic positions and business models and may need to

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consider the implications of capabilities and the potential pace of change the company needs to engage in to adapt to the changed environment. Company capabilities In addition to an analysis of the external situation, strategic diagnosis also needs to include a critical evaluation of the company’s capabilities relative to that situation. What are the organization’s key capabilities, and how can they be leveraged to support the requirements of the situation? What strengths can the company continue to build on? What capability gaps will need to be addressed? Take, for instance, the Swiss-based Kaba Group, an international niche player in access and security systems, at the point in time when Riet Cadonau was appointed CEO. In an interview he explained: When the board deliberated about the CEO change, it was obvious that this industry was moving from mechanical and electronic to cloud-based solutions in the next decade. Information technology and the ability to integrate with adjacent areas such as building automation play an increasing and essential role in our industry. When we look at the customer of a commercial building, an airport for example, then at that time still the facility manager or the security officer was normally our primary point of contact, but what we saw emerging was that more and more the Chief Information Officer became also responsible for the entire access control of these buildings. To stay successful, we needed people with fundamentally different capabilities and experience to develop new technologies and business models. Building such new capabilities is often a multi-year process that involves changes throughout the whole company. Financial situation While the external situation and the internal capabilities may set the development needs for the corporation, the company’s financial shape is another dimension to keep in mind while thinking strategically about the mandate and defining the CEO profile. While environment change

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in relation to internal capabilities defines the direction for the needed change, the financial shape defines the pathway and speed of change needed and therefore leads to very different strategic mandates. When Jonathan Lewis joined Amec Foster Wheeler in 2016, the company was in financial distress. Rather than thinking about long-term strategy, the financial position dominated the thinking and actions initially, and Lewis had to focus on short-term financial viability before being able to focus on longer-term strategic positioning. While a turnaround situation may be unique in putting intense pressure on the short term, all mandates will require a degree of ambidexterity8 that is simultaneously focused on the short term and the long term. Strategic ambition An understanding of the company’s environment, its capabilities, and its financial environment forms the basis to define a strategic ambition for leadership. A mandate is incomplete without a clear goal for the future that the incoming CEO and the organization at large should be striving for and a time frame to achieve that goal. Defining a clear ambition not only provides clarity of direction but also allows boards to evaluate success or failure in the long run. Taken together, based on the diagnosis of the situation, the company’s capabilities, and the financial position, the board can: • identify the need for change of strategy and operations; • identify opportunities to enhance the strategic position of the company in terms of the businesses the company will be in and how it will compete in these; • define the need to develop new capabilities; and • define the strategic ambition for the years to come. Strategic mandates need to be based on a solid understanding of the changes needed, the required resources and capabilities, and the time frames for these changes. Only then should the profile of a leader that is aligned with the path forward be developed. For instance, in 2018, Neste, a Finnish public company, being a global market leader in renewable diesel, wanted to broaden its business

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scope in renewable fuels and other sustainable chemical products when it began looking for a new CEO.9  Given that the strategic path was already set and Neste had, in fact, already begun its journey, the board was looking for a CEO who would continue the strategic transformation already underway; in other words, the strategic analysis identified a continuation mandate but one that was more dynamic than the typical continuation mandate. Jorma Eloranta, chairman of the board, explained: When we were looking for a new CEO, we were in a good financial position and had a very clear strategy in place. We had identified businesses into which we wanted to grow and wanted to find the best CEO that could implement that strategy. We needed a CEO that would have the leadership skills to continue leading the organization into that direction. As this example shows, a clear strategic mandate and a well-fitting profile for the new CEO will best emerge from a complete strategic analysis.

CEO prof iles The CEO should match the requirements of the strategic mandate. To accomplish this, the board needs to define the CEO profile to guide the search, based on the strategic mandate in addition to the general characteristics of the company. CEO profiles used by boards and headhunters commonly include several dimensions:10 experience and expertise, track record, leadership capabilities, personality, cultural fit, and general human qualities. Of these dimensions, some are particularly important to assess the match with the strategic mandate, some are important to match the CEO with the company in general, and some are simply general criteria to select a CEO candidate with an overall higher likelihood of success. To map the CEO profile with the strategic mandate, the experience, the expertise, and the track record of the CEO are particularly relevant. Boards need to ask: does the CEO candidate have the relevant experience and a successful track record to address the strategic challenges the company is facing? Has the CEO candidate already successfully solved similar

preparing for ceo selection

HOW TO SELECT THE RIGHT MANDATE To identify the right strategic mandate for the firm, boards should ask the following questions:

Firm’s context and external drivers • What is our strategic position in the industry? • How does it differ from our strategic ambition? • What are the foreseeable industry changes and trends that will change the competition in our industry? • Are there any technological or regulatory discontinuities on the horizon? • Are the leading business models in the industry changing? • Are these changes likely to undermine our strategic position?

Firm’s own capabilities • Does our current operational model support the strategic position? • What are our organization’s key capabilities? • Do we have an identified talent pool and a process to retain and grow such talent? • Are our capabilities sufficient to address the trends and changes in the industry? • What strengths can the company continue to build on? • What capability gaps will need to be filled? • Is there a need for a transformation of operational model and capabilities?

Financial situation • •

Is the financial position deteriorating? Are we or will we be in financial distress?

Strategic ambition • •

What are our strategic goals for the next five to ten years? Are we on the right strategic path to reach that ambition?

challenges in the past? Has the candidate led companies or businesses through similar situations?

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For instance, when the board of Google appointed Sundar Pichai as the new CEO in 2015, his successful technological track record played a major role in enabling Google’s technology focus to continue. As Larry Page wrote in one of his letters to the shareholders:11 I feel very fortunate to have someone as talented as he is to run Google.  .  .  . I know Sundar will always be focused on innovation  – continuing to stretch boundaries  .  .  . and I  know he deeply cares that we can continue to make big strides on our core mission to organize the world’s information. While all CEO candidates have a successful track record to varying degrees, not all successful pasts can guarantee a successful future, and to increase the likelihood of a promising succession, an at-least-theoretical match between the track record and the strategic mandate of the company is necessary. As mentioned earlier, Per Utnegaard had a very successful track record in various logistics and service businesses when he was appointed at German construction firm Bilfinger. Yet the strategic challenges that Bilfinger faced at his appointment were fundamentally different from the situations he had experienced, and as a result, his experience was of limited value in his attempt to reorient the struggling construction company. As a result, at the time of Utnegaard’s departure, limited progress had been made in turning around and redirecting Bilfinger.12 The second dimension involves the leadership capabilities and leadership style of the CEO candidate. Does the candidate have proven capabilities in leading the type of organization and the type of mandate the company is facing? For instance, Mario Greco, CEO of Zurich Insurance Group, gives the background to his appointment: Before I  joined Zurich Insurance Group, in 2012 I  was asked to restructure a similar company in Italy, Generali. It is in a similar industry but had very different issues. That restructuring was quite successful. So, that is the reason I think they wanted me back a few years later. Jacques Amey, partner at executive search firm Heidrick Struggles, explained:

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It is proven that the most successful leaders are the ones that are able to (i) mobilize teams and organizations, (ii) execute a strategic plan and (iii) transform businesses and organizations with agility. This translates into leadership capabilities such as shaping a strategy, leading innovation, driving for results, putting customers first, inspiring and influencing, building talents and teams, etc. The specific leadership capabilities of the candidate should be matched against the strategic mandate. For instance, continuing to lead a company along a previously set path requires very different leadership skills than transforming an organization or leading a turnaround under financial duress. To match CEO candidates with the general characteristics of the company, the CEO’s personality plays a central role. CEOs differ in personality traits like narcissism, overconfidence, openness, extraversion, agreeableness, conscientiousness, and neuroticism,13 and it is important to map how the configuration of these personality traits fits with the corporation, its management system, and its culture. In the words of Heiner Thorborg, a headhunter specializing in CEO, top management team (TMT), and board searches: “The most important success factor is the person´s personality. The CEO must be someone everybody would agree on, like ‘great fit for us and our team,’ and ‘exactly what we have been looking for.’ ” In a similar vein, the headhunter Maurice Zuffery suggests that “in my experience, almost 90 percent, or at least over 80 percent, of the misplacements and unsuccessful CEO hires are due to a question of cultural fit between the personality and the corporate culture.” In addition to the personality traits mentioned, personality also includes temperament, character, and social behavior. Boards are often in a difficult situation in assessing this match since not only do they have very limited time to get to know external candidates but also, by the very nature of their role, they are themselves partial outsiders to the organization and will often require the help of either insiders or outside consultants who are familiar with the culture. Finally, general human qualities and values also play a central role in the success of CEO candidates in the new role. Dieter Rickert, an

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experienced headhunter focusing on CEO and board-level appointments, summarized these under the terms imagination, judgement, courage, and humanity. In the words of Rickert: Humanity means that the CEO can also put himself in the situation of his subordinates. Not only those on the next level, but also further down in the organization. And only if he is able to see the world also through the eyes of his less ingeniously qualified comrades-in-arms, he is able to help them, to make clear to them what the goals are and how to achieve these goals more effectively. A former chairman of several publicly listed companies further noted: “The clarity of thought and the clarity of language are central in my view. These are not soft factors, but on the contrary very sharp. They are qualities that are very often missing, that you rarely find.”

CEO selection process While the CEO mandate and a profile matching that mandate are pivotal for selecting the right candidate as the next CEO, the overall selection process also warrants a few remarks. CEO selection takes time. A well-run CEO selection process takes time. Headhunters estimate that in an ideal case the company should plan for up to 18 months lead time for the whole succession process. Such lead time enables a structured process that gives equal consideration to internal and external candidates and allows time to search and analyze candidates with sufficient depth. However, it implies that the CEO succession is planned well ahead, such as when a sitting CEO plans to retire. In many instances, however, succession processes happen in much shorter periods of time and often without sufficient structure. Often CEO succession arises when a CEO leaves unexpectedly or when the board decides to make drastic changes due to performance issues or radical changes in the industry that do not allow for long-term planning. However, as Christoph Zeiss, managing partner of executive search firm Heads explained, in other instances it is “the lack of patience and discipline on the side of the board or e.g. shareholders” that leads to unnecessary shortcuts.

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However, this lack of time and structure comes at a cost to the company. Rushed selection processes often lead to poorly defined mandates and CEO profiles. Under time pressure, boards also often take short cuts in identifying and screening candidates, potentially ending up with the most obvious candidates rather than the candidate best fitting the mandate. As Hans-Peter Schwald, chairman and board member of several listed companies, explained: “Fact is that the risk increases if you don’t structure the process properly and don’t take enough time.” Steps in the selection process. As we argued earlier, the first and pivotal step of the selection process is for the board at large to diagnose the strategic situation of the company and develop a joint view on the mandate for the next CEO. Against the clear mandate, the board, or the nomination committee of the board, can then define the ideal profile of the next CEO, drawing upon the different dimensions we highlighted. Once the board has identified the mandate and the CEO profile, candidate search should begin inside and outside the company. This process is typically conducted by the nomination committee and led by the board chair, the lead independent director, or the head of the nomination committee, with headhunters often brought in to support the process. Headhunters can be important sparring partners for the board because, during the selection process, the board is under a lot of pressure, can overlook obvious things, and typically simply lacks the resources to conduct a wide and deep search. However, to play this sparring partner role, headhunters need to be on an eye level with the board, have the courage to challenge them, and push for due process. How often headhunters are really playing such a role, however, can be doubted, given the strong incentive they have to maintain highly lucrative relationships with clients, as many chairs and headhunters admitted in confidence. Maintaining the confidentiality of the process is often another important role for headhunters, particularly in cases where performance is declining or the need for a strategic transformation has been identified at a time when the sitting CEO is still in the role. While board members may be aware of or even be familiar with a number of candidates, systematic search should be based on a thorough discussion regarding the profile of an ideal candidate followed by the creation of an initial list of candidates for the position beyond that set

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of known candidates. Christoph Zeiss, managing partner of executive search firm Heads explained: A solid CEO search needs to start with a comprehensive understanding of the needs, the profile, the company, its culture and top management, its markets and challenges, and then followed by a serious market screening. To make a good decision you simply need to start from a comprehensive mapping of the industry cluster, its organizations and their executives. Given that this kind of mapping exercise is beyond the resources of the board members, headhunters play a second important role by engaging in a systematic search based on databases and contact networks in the relevant industries and regions, in order to produce a set of candidates based on the mandate and candidate profile, rather than on prior relationship to the board only. The initial long list of candidates may encompass as many as 30 or even 50 potential candidates. It subsequently will be narrowed down in several rounds of interviews that are carried out by the headhunter to a shortlist of between five and eight candidates. The shortlist is then reduced through additional interviews, carried out first by the chair and possibly the nomination committee members, until a final list of two to three candidates is identified for interview by the full board. Jacques Amey explained: It requires a lot of interactions. It starts with a first formal interview and conversation, goes to a second round, third round and we usually advise our client to have a more informal meeting with the finalist candidates; either a lunch or a dinner, whatever is possible. In some circumstances, family companies typically, they would like to meet the partner to win a more holistic picture and to get a better sense of the people they’re hiring. As this quote underlines, the goal of the complex interview process is to spend enough time with the candidates not only to examine their professional track record but also to understand the personality and potential constraints of the person. It is therefore very important that a sufficient

preparing for ceo selection

WHO IS BEST POSITIONED TO HELP US IDENTIFY THE RIGHT CEO? When choosing a headhunter for a CEO position, boards often have the choice between small boutique firms specializing in CEO and top management team appointments and large executive advisory and search firms. In making their choice, the board should ask the following questions: Does the headhunter bring a fresh perspective that complements the board’s views and knowledge? Especially in a CEO search, headhunters should bring in a new perspective that explicitly differs from and complements the views and experience of the board. Is the headhunter truly an independent voice? While large executive search firms may have experience with the focal firm, their dependence on the firm may bias their search towards candidates from whom they expect more business. Can the headhunter search widely? While experience in the industry may speak for a large executive search firm, this experience may come with extensive search exclusions due to prior assignments in the industry, and as a result, an executive search firm may not be able to present the best candidates. Does the headhunter have the ability to drive an analytical process? A CEO search needs to be as analytical as other search assignments. Small boutique firms may lack the ability to invest in analytical tools and, as a result, rely mostly on personal networks and intuition. Large executive search firms are often more focused on process and analytical tools.

number of board members participate in the process to gain multiple and comparable viewpoints on at least the final two or three candidates. However, this is not always the case in boards that are dominated by individuals, as a headhunter anonymously explained to us: “I have seen cases where, after an hour, a chairman told the candidate: ‘You are my candidate.’ He didn’t look at anybody else after that. And his colleagues on the nomination committee and the board could only rubber stamp the decision.”

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Processes that are dominated by an individual and lack full involvement of the nomination committee and the board at large are likely to lead to biased decisions, in which personal chemistry may easily outweigh professional qualification or the fit of the candidate with the needs of the company. Once the final candidate has been chosen, the process concludes with a reference check, within the limits set by local legislation. While often viewed as a mere formality, this reference check is important to avoid costly mistakes in the appointment process. A former chairman of several publicly listed companies explained: “The final step is obtaining references, preferably picking out one or two, then talking to them, ideally meeting even in person. Because in a personal conversation, details come out that would never be written down.” Such reference checks can raise issues that may preclude an appointment. For instance, a headhunter told us in confidence about an instance when he learned during a face-toface reference check about the alcohol dependence of a candidate about to be chosen for a CEO position. While in a more formal setting, such information would not have been shared, the former colleague providing the reference had made a side remark that the headhunter followed up on during the conversation.

Notes 1 Sean Gregory, “Corporate Scandals: Why HP Had to Oust Mark Hurd,” Time, August  10, 2010, http://content.time.com/time/business/article/ 0,8599,2009617,00.html. 2 Poornima Gupta and Peter Henderson, “Insight: How HP’s Board Presided Over a Train Wreck,” Reuters, 2011, accessed June  11, 2020, www. reuters.com/article/us-hp-board-insight/insight-how-hps-board-presidedover-a-train-wreck-idUSTRE78L4M020110922. 3 For a similar perspective on CEO succession and a broader discussion of the board’s roles, see, for instance, Jorma Eloranta, Board of Directors  – Focus on Value Creation (Helsinki: Otava, 2019). 4 Ram Charan, “Ending the CEO Succession Crisis,” Harvard Business Review 83, no. 2 (2005). 5 Richard P. Rumelt, Good Strategy, Bad Strategy: The Difference and Why It Matters (New York: Crown Business, 2010).

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6 Jeffrey Cohn, “A  Board’s Unrealistic Hopes Can Derail a CEO Succession,” Harvard Business Review (2014), accessed July 25, 2020, https://hbr. org/2014/02/a-boards-unrealistic-hopes-can-derail-a-ceo-succession. 7 See, for instance, Rumelt, Good Strategy, Bad Strategy; Martin Reeves, Knut Haanæs, and Janmejaya Sinha, Your Strategy Needs a Strategy (Boston, MA: Harvard Business Review Press, 2015); Paul Leinwand and Cesare Mainardi, The Essential Advantage (Boston, MA: Harvard Business Review Press, 2011). 8 Michael L. Tushman and Charles A. O’Reilly, “Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change,” California Management Review 38, no. 4 (Summer 1996), Charles A. O’Reilly and Michael L. Tushman, “The Ambidextrous Organisation,” Harvard Business Review 82, no. 4 (April  2004), Michael L. Tushman, Wendy K. Smith, and Andy Binns, “The Ambidextrous CEO,” Harvard Business Review 89, no. 6 (2011). 9 For an in-depth discussion of Neste’s transformation, see, for instance, Eloranta, Board of Directors. 10 Dennis C. Carey and Dayton Ogden, CEO Succession (Oxford: Oxford University Press, 2000); R. Charan, “The Secrets of Great CEO Selection,” Harvard Business Review 94, no. 12 (December 2016). 11 www.marketwatch.com/story/heres-the-letter-larry-page-wrote-to-explainthe-new-google-structure-2015-08-10. 12 Michael Gassmann, “Der Nächste Scheitert an Roland Kochs Chaos,” De Welt, April  13, 2016, www.welt.de/wirtschaft/article154326469/DerNaechste-scheitert-an-Roland-Kochs-Chaos.html. 13 Andreas Koenig, Lorenz Graf-Vlachy, Jonathan Bundy, and Laura M. Little, “A Blessing and a Curse: How Ceo’s Trait Empathy Affects Their Management of Organizational Crises,” Academy of Management Review 45, no. 1 (January 2020), Ya You, Shuba Srinivasan, Koen Pauwels, and Amit Joshi, “How CEO/CMO Characteristics Affect Innovation and Stock Returns: Findings and Future Directions,” Journal of the Academy of Marketing Science (2020), Joseph S. Harrison, Gary R. Thurgood, Steven Boivie, and Michael D. Pfarrer, “How a CEO’s Personality Affects Their Company’s Stock Price,” Leadership: Harvard Business Review (October 9, 2019), https://hbr. org/2019/10/how-a-ceos-personality-affects-their-companys-stock-price.

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2 CONTINUATION – MORE OF THE SAME

Starlight (company details disguised for confidentiality) is a familycontrolled public company headquartered in Canada. Over several decades, Starlight has grown into one of the world’s leading manufacturers of industrial goods and services. As with many family-controlled companies, Starlight had been run by family members over most of its history. When in 2014, the sitting family CEO contemplated stepping back from the CEO role to focus on the chairman role, the board was faced with the decision of whom to appoint to guarantee continuity in the leadership and implementation of the strategy. None of the family members at the time had the leadership skills to become CEO. At the same time, the board was concerned that an outside CEO would find it difficult to work with a strong chairman who had every intention of continuing to direct the company. Given this situation, the choice fell to an internal candidate that was heading one of Starlight’s business units. He was subsequently promoted

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to CEO in 2015, while the former family CEO continued to set the strategic direction as the chairman of the board.

What are continuation mandates? Continuation mandates reflect situations in which the board does not envision a need for a change in strategy, given the evolution of the environment of the company, and wants to maintain its current direction.1 This should not be interpreted as a standstill but should rather be seen as a case of a strong corporation with a winning strategy, which has also been successful at talent management, breeding the next CEO and maintaining a razor-sharp focus on strategy implementation. CEOs under this mandate are expected to stay on a path that is considered successful and, in the case of an internal succession, that they may have contributed to, rather than taking a new direction.

When do boards choose a continuation mandate? The continuation mandate is the right mandate when the board comes to the conclusion that the capabilities of the organization and its leaders and the current strategy are well aligned with the requirements of the environment in the years to come, and the vision can remain the same. Boards typically choose continuation mandates in four specific situations: founder step-out, family CEO step-out, unexpected CEO departure, and CEO retirement. Founder step-out Continuation mandates are very common when a founder CEO wants to retire from day-to-day leadership and focus on a strategic role as (executive) chairman. CEO succession at Google is an example. Google was founded by Larry Page and Sergey Brin while they were PhD students at Stanford University and, under their leadership, quickly grew to become the leader in internet searches. Despite their strong role as Google’s founders, Page and Brin relied from the outset on additional management talent to lead the corporation. From 2001 to 2011, Eric

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Schmidt, an experienced executive, led Google as the CEO. When Schmidt stepped back in 2011, Larry Page, one of the two founders, stepped into the leadership role and led the company as CEO. In 2015 Larry Page set a new vision for the company focused on further accelerating Google’s growth beyond its core businesses. To do so, he stepped back from the day-to-day business of Google, and Sundar Pichai was appointed CEO. Larry Page, instead, focused his energy on Alphabet, the holding company he and Sergey Brin had created to accelerate growth through additional ventures. Pichai, the new CEO, had joined Google in 2004 in a development role and rapidly rose through the ranks to lead important initiatives such as Google Chrome, the Chromebook, and the Android operating system. While holding these positions, he had developed a reputation for technical brilliance and a leadership style that focused on technical vision rather than flamboyant personality. Four years later, when Larry Page decided to distance himself further from the day-to-day business and moved to the chairman role at Alphabet, Pichai also became CEO of Alphabet. While Pichai has been playing a central role in setting and implementing the strategy of Google, and more recently Alphabet, the overall strategic direction continues to be set by Larry Page and Sergey Brin as is common in founder step-out situations. Family CEO step-out Continuation mandates are also very common in family-controlled businesses when a family CEO retires or wants to step out of responsibility for the day-to-day business, and no family successor is available, as described in our opening vignette. In other situations, family members may not have the right capabilities to lead the corporation. For instance, when Bill Marriott decided to retire after over 40 years at the helm of the Marriott Group, together with the board, he decided to appoint Arne Sorenson, the first non-family leader in the history of the Marriott Group, rather than his son John. Bill Marriott commented on the choice: The more I looked at the situation, the more I realized that John is a natural-born entrepreneur. He doesn’t have the temperament to run

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a company the size of Marriott today, with 3,800 properties and 18 brands. He doesn’t want to be tied to his desk. Over time we both came to the conclusion that, wonderful as it would have been for me to hand Marriott off to my son, he wasn’t the right choice.2 Also in this case, the board and, in particular, the controlling family continued to set the strategic direction and be deeply involved with the business. Unexpected CEO departure Continuation mandates are also often the choice when CEO departure is unexpected, either due to the death of the prior CEO or when the prior CEO takes a new job. For instance, when Jan Jenisch moved from the construction chemicals firm Sika to LafargeHolcim, the global leader in the cement industry, he was succeeded by Paul Schuler, one of the regional business heads and a member of the group management team, with the explicit mandate to continue Sika’s strategy. Similarly, when Wang Jian, co-chairman and de facto CEO of the Chinese conglomerate HNA, a member of the Fortune Global 500, unexpectedly died in an accident in 2018, the company moved quickly to appoint internal executive Adam Tan to his position. CEO retirement Finally, continuation mandates are also common in the case of CEO retirement when a company is set on a successful strategic direction, as happened in 2019 when Yves Serra retired as CEO of Georg Fischer (GF), a publicly listed industrial corporation. As part of the search process, the board considered both internal and external candidates. Andreas Müller, an internal candidate who had held senior finance and other operational positions with George Fischer for the past 25  years, was selected. In a statement to the press, Andreas Koopmann, at that time chairman of the board, commented on the appointment, saying GF had “found an ideal internal solution that will ensure continuity in further development of our company. We are convinced that under his operational leadership, GF will continue on a successful path in a dynamic and efficient way.”

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Why internal candidates are a natural choice Under the continuation mandate, internal candidates are the preferred option for CEO succession, as also confirmed by the view of headhunter Maurice Zuffery: “If a company is basically doing relatively well, when there is a certain continuity or stability in strategy, when no major crisis exists, then one can say that internal candidates should perform better than external candidates.” There are several reasons for the preference for internal candidates in continuation mandates. Because continuation mandates are focused on implementation of an existing strategy, leaders who know the organization well, have been part of the strategy development, and know the existing strategy have an advantage over external candidates. The latter would need time to get to know the organization and the strategic direction and may be tempted to change it. Given their familiarity with the organization and the strategy, internal candidates will be able to drive strategy implementation faster and with less risk of hesitation and doubt. Although internal candidates may have an advantage over outside CEOs as they do not need time to get to know the organization, boards should not underestimate the time required for an executive to learn to be effective as CEO when they are appointed for the first time. This is because the CEO role brings a number of responsibilities that executives on the level below do not have the opportunity to gain experience in. Jan Jenisch commented on his experience when he was appointed CEO for the first time, at the Swiss construction chemicals company Sika: The leap to actually running the company is big especially strategically. Even if you were previously on the group management. What is your strategic decision-making scope? As business head, you manage a region according to group strategy or you manage a division. But as CEO, you are responsible for developing the strategy and then you can be brilliant at it yourself, or you can take part in the process, but that is a new challenge. Then you have to be in charge on the performance side, which is perhaps the second big challenge. You are responsible, there are no excuses. You have to lead the company with all the necessary rigor of measurement and measures. That too is perhaps a leap that you personally need to make. And

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then you have a few stakeholders who are more or less demanding. You didn’t do that either as a group head. And that is quite a big leap. For me personally it has been the biggest leap in my career, where I had to grow as a leader. Another reason boards may prefer internal candidates for continuation mandates is that boards often find it easier to evaluate whether an internal candidate fits the organization and the existing strategy, simply because there is a degree of comfort with a known candidate, possibly with good chemistry and existing established relationships. Eckhard Cordes, former CEO of the German retail group Metro and currently partner at private equity investment firm Cevian explained: The big advantage of internal candidates is that, especially if the company has a powerful executive development system, you have candidates that are well known to you. One knows what they can and cannot do and for which mandate they are suitable. . . . If you take an internal, the candidate knows the company. And the supervisory board or the chairman of the supervisory board knows the person. And even if the chairman is new, he has reliable statements from within the company so he knows with much greater certainty how the candidate operates. . . . In my experience, hiring someone from the outside is always a higher risk than hiring someone from the inside. In the continuation mandate, the higher risks these external candidates bring are rarely compensated for by higher value since internal candidates should have the requisite skills to lead the company. For continuation mandates, external candidates become the chosen option mostly when there is no internal candidate with the requisite track record or potential. In this case, boards need to take particular care to identify an external candidate who fits the organization and the strategic needs for continuity and is willing to work under this relatively restrictive mandate. The board needs to work particularly closely with the new CEO to reduce the risk of diverging views on that strategy and its implementation.

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Common characteristics and problems with the continuation mandate Continuation mandates may provide the incoming CEO considerable freedom and responsibility in operational matters, but they also imply limited discretion in setting strategic direction. This lack of freedom is often one of the challenging aspects of continuation mandates and something that may become highly problematic in the case of external appointments. Greg Poux-Guillaume, CEO of Swiss-based fluid engineering company Sulzer, commented: Most CEOs feel pressure to start implementing changes quickly after they arrive. There’s always this incredible temptation to try to change direction. A  tell-tale sign is immediate organizational changes, despite the fact that they are disruptive, and that the payback is usually disappointing. Given that boards that choose continuation mandates are often led by a strong chair who is either a founder, a family owner, or a former CEO of the company, the relationship between the chair of the board and the CEO is particularly important for success. The chairman often wields a great deal of power and may still set the strategic direction. Under a continuation mandate, any incoming CEO must be willing to work closely with a strong chair of the board and accept the chair’s leadership in strategy setting.3 Another characteristic of continuation mandates is that they have shorter time horizons than most change-oriented mandates. When CEO succession happens unexpectedly, continuation mandates may characterize the initial stage of a multi-stage CEO mandate and may be followed by different mandates at a later point in time. In other cases, they may be interim solutions to buy the board time for a more fundamental strategic rethink. Additional challenges in continuation mandates often revolve around a misfit between the CEO profile and the mandate and the resulting friction between the CEO and the chair of the board.4 This is most often the case with externally recruited CEOs, where the misfit between the CEO’s profile and the mandate may be compounded by misfit between

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IS OUR BEST INTERNAL CANDIDATE UP TO THE TASK? While internal candidates are the natural choice for continuation mandates, boards need to critically evaluate whether their candidates are up to the task. Here are some questions boards should ask themselves and discuss: • • • • •

Does the candidate have the ability to lead the whole firm rather than only a business or function? How much of the candidate’s track record was driven by the former CEO? Is the candidate able to lead the firm through unexpected strategic change? Is the candidate strong enough to face the chairman? Is the candidate a trusted individual in the organization, and will he or she be respected – in particular by the executive team members?

the characteristics of the CEO and the organization, as the example of William Perez at Nike shows. In 2004 William Perez succeeded founder Phil Knight as the CEO of Nike, the US manufacturer of sports footwear and apparel. Prior to his CEO appointment at Nike Inc., he had spent over a decade at S.C. Johnson, a privately held and family-controlled firm that produces household cleaning supplies, where he held a variety of executive positions, including division president, chief operating officer, and CEO. Compared to S.C. Johnson, Nike was in a fundamentally different industry, much larger and at the growth phase of its life cycle. Whereas at S.C. Johnson, Perez had sailed from success to success, at Nike his tenure quickly ran into problems because he “could not make the transition from the household products industry to head the world’s largest athletic-shoe company.”5 While in William Perez’s case, the misfit seems obvious in retrospect, misfit is not always easy to identify when evaluating candidates as the information, in particular on external candidates, is limited. A second common problem with continuation mandates arises from conflict between the chairman and the CEO, in particular when the strategy continues to be driven by a chair who previously led the company as

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CEO, is a member of the controlling family in family companies, or is the founder of the company, as in the case of Jack Ma. In 1999, Ma founded Alibaba as an e-commerce company in Hangzhou, China. Over the course of 20  years, the company became one of the global leaders in e-commerce and related technologies. In 2013, as Ma tried to increasingly focus on strategic development and diversification, he chose to step back from the CEO role and was succeeded by Jonathan Lu. Lu had been known as Ma’s low-key right hand to run operations. However, after only two years, the company’s stewardship was further passed on to Daniel Zhang. A common external perception was that Ma had developed doubts about Lu’s ability to lead the corporation. The challenging choice in a continuation mandate may therefore be that boards need to identify a CEO candidate who is strong enough to lead the company as the CEO and at the same time is willing to work with a strong chair who may continue to control some of the decisionmaking. In striking this balance, boards may err on both accounts by either hiring a too–strongly willed CEO candidate who clashes with the chair or by hiring a too-weak candidate who fails to provide the leadership needed from a CEO. Finally, a related problem arises when the board misjudges the mandate needed or when, during the initial mandate, unforeseen changes in the environment create the need for a different strategy.6 In this situation, a CEO who was first and foremost chosen to continue the strategy implementation may not be the ideal choice to respond to the change and redirect the company. When the board of the Swiss specialty chemicals company Clariant appointed Jan Secher as CEO in 2005, all signs were pointing towards a continuation of its gradual transformation towards higher growth businesses. Prior to becoming CEO at Clariant, Secher had led a division at ABB and then been CEO at SICPA Group, a substantially smaller Swiss company focusing on packaging inks and security inks for bank notes. However, less than two years later, the emerging financial crisis forced the board to radically rethink strategic direction and focus on more radical cost and financial stability measures. After some consideration, the board chose to replace Secher with Hariolf Kottmann, a chemical industry veteran. As this example suggests, boards are always well advised to look for a CEO who is versatile enough to identify the need to change strategic direction and develop a new vision when the need arises.

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LET’S RECAP: THE CONTINUATION MANDATE IN A NUTSHELL What is it? Continuation mandates focus on continuing an existing strategic direction and implementing a given strategy over a relatively short time horizon. When is it used? Continuation mandates are often chosen when founders step out of the CEO responsibility, in succession of family controlled companies, when CEOs depart unexpectedly, and when CEOs retire but keep influence in the company through board positions. CEO profile: The natural choices for continuation mandates are internal CEOs with deep knowledge of the business and current strategy. CEOs are chosen more for their strategy implementation skills than their strategic vision. Common characteristics: In continuation mandates, CEO freedom in strategic matters is often limited, and the CEO needs to work with a strong chair. Common problems: Continuation mandates often fail when there is misfit of candidates, in particular with external candidates, and resulting friction between the CEO and the chairman.

Notes 1 Richard P. Rumelt, Good Strategy, Bad Strategy: The Difference and Why It Matters (New York: Crown Business, 2010). 2 Bill Mariott, “Marriott’s Executive Chairman on Choosing the First Nonfamily CEO,” Harvard Business Review 91, no. 5 (2013). 3 Andrew P. Chastain and Michael D. Watkins, “How Insider CEOs Succeed,” Harvard Business Review 98, no. 2 (2020). 4 Robert Hooijberg and Nancy Lane, “How Boards Botch CEO Succession,” Mit Sloan Management Review 57, no. 4 (Summer 2016). 5 Nike_News, “Mark Parker Named CEO, William D. Perez Resigns,” January 23, 2006, accessed January 1, 2018, https://news.nike.com/news/markparker-named-ceo-william-d-perez-resigns. 6 Thomas Keil and Marianna Zangrillo, “Don’t Set Your Next CEO Up to Fail,” MIT Sloan Management Review 61, no. 2 (2020).

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3 EVOLUTION – ADAPTATION WITHIN BOUNDARIES

Roche has been one of the European leaders in the global healthcare industry for decades. The 2000s marked a transition for the industry with a gradual shift towards an increasing reliance on biotechnological innovation. Roche itself had been active in this field internally since the 1980s and later had partnered with Genentech – one of the US biotech pioneers and leaders. As the competition began to catch up, Roche recognized an opportunity. The rapid advances in the understanding of the molecular biology of diseases opened up the prospect of a new paradigm  – personalized healthcare. Besides its expertise in pharmaceuticals, Roche had deep capabilities in diagnostics – a critical component in stratifying patients and determining targeted treatments – and the company crafted a focused strategy to leverage the two businesses and to pursue this vision. When CEO and chairman Franz Humer announced that he would step down as CEO and concentrate on the chairman role, Roche’s board did not see a need for a change in strategy. In choosing its next CEO, the board preferred internal candidates to ensure that personalized healthcare

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would become reality. In July  2008, Roche announced that Severin Schwan, at the time only 40  years old, would be appointed the next CEO of Roche. An Austrian national by birth, Schwan had spent his entire career at Roche and had experience in both pharmaceuticals and diagnostics after having risen rapidly through several positions in finance into the leadership of the diagnostics division. As head of the diagnostics business, Schwan had just completed the acquisition and integration of Ventana, a company that provided critical capabilities in tissue diagnostics to drive more personalized healthcare solutions in oncology. Schwan’s initial mandate was characterized by taking bold steps rapidly: first, by acquiring the remaining stake of Genentech for USD 47 billion – the biggest acquisition in Switzerland until this date – and, second, by integrating Genentech into the Roche Group and establishing seamless interfaces with the diagnostics business. Over the following years, he evolved the strategy by adding a third pillar to the existing pharmaceuticals and diagnostics businesses – called “insights.” With large volumes of real-world patient data from the clinical healthcare practice and advanced analytical tools, valuable insights can be generated to bring personalized healthcare to the next level: i.e., to target novel medicines even better to individual patients. This strategic direction was supported by two major acquisitions of companies active in the business of leveraging large realworld healthcare data sets: Flatiron Health and Foundation Medicine.

What are evolution mandates? Evolution mandates reflect situations in which the board wants to maintain the overall strategic direction of the company but gradually evolve the strategy or its implementation. This may involve shifting priorities within the strategy or a gradual adjustment of the overall direction of the company. It may also imply change in the strategy implementation: for instance, by shifting from organic business development to mergers and acquisitions or by setting a new focus. As a result, CEOs chosen under the evolution mandate often have more leeway to evolve the strategic priorities under the existing strategy and to gradually evolve the strategic path of the corporation, in addition to setting new priorities in its implementation.1

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When do boards choose an evolution mandate? The evolution mandate can be right for the corporation in cases in which the organization has a strategy that fundamentally continues to be aligned with the requirements of the environment, except for some adaptation, and when only moderate gaps in its capabilities exist, which can be filled under new leadership, as in the opening example. We found that boards choose continuation mandates predominantly in three situations: • When the board sees the need for strategic adaptation; • When the strategy needs focus on new strategic priorities outside the past scope of the company; and • When strategy implementation needs to be changed. Need for strategy adaptation Boards choose an evolution mandate when they perceive the need for a moderate strategy evolution rather than a radical departure. For instance, in 2012, when the board of Lockheed considered the succession of thenCEO Robert Steven, it was facing a challenging time. Federal spending in the US, the main driver of Lockheed’s business, was set to decline, thereby increasing competition and forcing Lockheed to adapt its strategy. It was against this backdrop that the board appointed Marillyn Hewson as its new CEO. Hewson, an economist by training, after a short stint with the Bureau of Labor Statistics had spent her career at Lockheed heading several businesses. Hewson’s mandate was to evolve Lockheed’s strategy against the changed funding environment and to further improve relationships with federal funding agencies.2 Such gradual evolution of strategy is also common in family firms where leadership shifts from a family member to a non-family CEO. In this case, mandates may start with the implementation of existing strategy and only allow for departure from the status quo over time, when the new CEO has built enough trust with the family owners. That happened, for example, when Gilbert Ghostine of the fragrance and flavor producer Firmenich was initially tasked with continuing to implement a strategy already set before his appointment while also beginning to develop a new strategic direction.

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Focus on new strategic priorities Evolution mandates are also common when the board views the need to shift priorities within an existing strategy. As the book’s opening example of Mark Schneider at Nestlé exemplifies, a gradual change in the company’s environment may require priorities to shift among different elements of a company’s strategy. In turn, evolution mandates may require a CEO profile that differs from the profiles of internal candidates who have been driving the old set of priorities.

Need to change implementation focus Finally, boards may also choose an evolution mandate in order to shift the emphasis of strategy implementation within an existing strategic direction. Strategy implementation can be supported by a number of levers, including structure, culture, processes, and systems, and different companies develop distinct configurations of these levers over time.3 Adjusting these configurations may not involve changing the strategic direction but may involve substantive evolution of these levers throughout the organization. In 2012, Mohsen Sohi was appointed the new CEO of Freudenberg, a German family-owned engineering conglomerate with interests in housewares and cleaning products, automobile parts, textiles, building materials, and telecommunications. At the time of the succession, the group was performing well, but the board was seeking a faster pace of strategy implementation and a stronger emphasis on overseas markets.4 As Mohsen Sohi pointed out in a conversation with us, this called for a lot of changes in terms of culture and organization and a shift to management through more professional and transparent processes.

CEO prof iles: internal or external candidates? The CEO profile for an evolution mandate differs somewhat from the profile best suited for the continuation mandate. Where the CEO profile for the continuation mandate should focus on skills related to the existing strategy and strategic position of the corporation, the evolution mandate often focuses on specific skills that were less emphasized before the CEO succession or may be lacking in the management team of the company

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altogether. Furthermore, where the continuation mandate may call less for a strategic visionary and may benefit from a leader with strong operational capabilities, the evolution mandate tends to place higher demands on the strategic skills of the incoming CEO. These differences often lead to a broader range of candidates being chosen for evolution mandates. In particular, where the continuation mandate is almost exclusively the domain of inside CEOs (provided a suitable candidate is available), boards should consider both internal and external candidates for evolution mandates.5 Take, for instance, the recent CEO succession at Nestlé from our opening example in the book. The appointment of industry outsider Mark Schneider surprised many observers, given Nestlé’s long-standing tradition of hiring internal CEOs and its strong roster of internal candidates. At the same time, Nestlé ensured gradual evolution in the strategy by appointing the former CEO Paul Bulcke to the position of chairman of the board, a role that, particularly in Switzerland, is intensely involved in strategy setting and can therefore bring equilibrium in the case of an external CEO appointment. In choosing whether to pick an internal or an external candidate, the board needs to weigh two considerations. On the one hand, since the mandate is rooted in the existing strategic position or direction of the company and focuses on adaptation of the strategy, the profile calls for in-depth knowledge of the focal company, its strategic position, and the current strategy. This advantages internal candidates who have a proven track record with the organization and have been involved in creating the current position and setting the existing strategy, thereby reducing the risk of misfit. In the words of a long-term CEO: “If the company’s business model works and the main purpose of the change is to mostly influence the way how the company is operating, it is the best idea to choose an internal candidate.” As with the continuation mandate, internal candidates have the advantage of being highly familiar with the organization and its strengths and weaknesses, thereby allowing them to make changes relatively soon after being appointed. As Mohsen Sohi, CEO of Freudenberg, commented: “I already had a list of the things that I thought needed to be changed so it gives you an advantage in terms of taking action fast. The first twelve months are critical.” On the other hand, evolution mandates call for adaptation of the existing strategy, a shift in strategic priorities, or a new implementation focus. These

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gradual departures often require capabilities from the CEO candidate that may be lacking in the company. Patrick Firmenich, chairman of Firmenich, for instance, commented on the appointment of Gilbert Ghostine: We had come to the realization that our industry was starting to consolidate quite rapidly and that we needed to be more aggressive on that front. We lacked the expertise and our internal candidate did not have good expertise in that area. Mr. Ghostine had great expertise in that respect and that was a plus. Similarly, Paul Bulcke, chairman of Nestlé commented on the appointment of Mark Schneider: “We felt that Mark Schneider was the person that fit well with our strategy. We felt that he completely understood what we want to achieve and actually his background helps to understand the full extent of the strategy.” However, as Peter Voser, former CEO of Dutch Oil giant Shell and current chairman of industrial leader ABB pointed out: Going with an external candidate is always risky. Because an external CEO always creates some internal disruption. And also has a higher risk profile because you do not know the candidate to the same extent. So it really depends on where the company stands, how much change you want and need. Part of the disruption comes from the fact that an outside CEO joins from a different company and may have worked in a different industry or a different geography. Each of these differences creates learning needs for the new CEO and increases the risk of misfit with the organization, with the board, or with the specific requirements of the strategic mandate. Boards therefore need to think critically about how many dimensions an outside CEO can differ from the hiring company on. As Jacques Amey, partner at Heidrick and Struggles, commented: “Once you see the differences in experiences, boards need to decide how much compromises they are ready to accept. It is often about balancing risks and opportunities.”

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Despite these risks, an external CEO may be the better choice when the candidate clearly stands out in comparison to the internal candidates. A chairman of the board described in confidence the process at their company that led to the selection of an external CEO for an evolution mandate: We had a set of three internal candidates: The CFO, and two division heads. We decided to put them in comparison with outside candidates. When we started the process, we had agreed as a board that the external candidates must really be head and shoulders above our internal candidates. There would need to be a substantial gap. Because when you interview an external candidate it is very difficult to assess the full scope of the person and if he or she is a good salesperson you will always get a positive picture. Whilst your internal candidates, you know them inside out, their strengths and their weaknesses. So, they are always at a little bit as a disadvantage. So, we said for it to be a fair and transparent process the external candidate had to be far superior. In summary, where for the continuation mandate, internal candidates are almost always the best choice because they pose a lower risk and may create value faster, in evolution mandates the choice depends on the balance between the lower risk of internal candidates, the familiarity and track record that internal candidates bring to the position and the potential for specialized skills and capabilities that an external candidate may bring to the table.

Common characteristics and problems with the evolution mandate Compared with the continuation mandate, evolution mandates provide the incoming CEO with a higher degree of freedom and responsibility in strategy setting. They are also often designed for longer periods than continuation mandates. Evolution mandates start from an existing strategic position and direction, yet boards should have the expectation that the incoming CEO adapts the strategic position of the company and evolves the direction over time. Evolution mandates therefore require intense strategy

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LET’S RECAP: THE EVOLUTION MANDATE IN A NUTSHELL What is it? Evolution mandates focus on small adjustments to strategy and changes in priority of the strategy implementation over longer periods of time. When is it used? Evolution mandates are often chosen when the board sees a need for strategy adaptation, when there is a need to change priorities among different elements of the strategy, and when strategy implementation needs to be changed. CEO profile: Evolution mandates more often call for internal candidates, but external candidates can succeed if they bring unique skills related to the intended direction of evolution. Common characteristics: Evolution mandates provide some degrees of freedom in adapting the strategy and/or the implementation. Common problems: Evolution mandates may lead to friction between the CEO and chair over either strategic direction or pace of implementation, and external hires are more often characterized by misfit than internal hires.

work, at least after an initial period of time, and a strategic visionary at the helm of the company. For the incoming CEO, this means that often, initially, they need to focus on strategy implementation while retaining the mental flexibility and vision to reimagine the company for the future. Because the need for the evolution of the strategic direction is central to the success of evolution mandates, the incoming CEO and the board, in particular the chair, should find a consensus on strategic direction setting and work closely together. As with the continuation mandate, this is not always easy when evolution mandates are chosen in family- or founder-controlled companies, where the controlling family or founder continues to be involved tightly in strategy setting, or in companies where a strong chairman continues to set the path.6 For instance, Ernesto Occhiello was hired as an external CEO to lead the Swiss specialty chemicals group Clariant in 2018.7 However, after only nine months, he resigned over differences in strategy with chairman Hariolf Kottmann.8

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To address, or even avoid from the outset, potential tension between the CEO and the chair, it is important that the roles in terms of strategy setting and implementation are clearly defined from the start. As Jörg Reinhardt, the chairman of Novartis, explained to us: Chairman and CEO should be a team that really harmonizes so well that you can’t play one off against the other. They have to trust each other. You can’t have a CEO who comes rushing up every time the Chairman calls one of his employees and says, how can you interfere in my operational activities. At the same time, you need a chairman who understands that the CEO is running the company. But this is a very difficult fine-tuning process that has to work in tandem and must be clearly understood by the organization. Additional challenges in the evolution mandate often depend upon the CEO’s background. With external CEOs, there is the potential misfit of the CEO with the hiring organization. Despite advance planning by the board, external CEOs always involve a surprise element that increases the risk in hiring. As a result, external CEOs may not only exhibit misfit with the mandate9 but are also more likely to exhibit misfit with the organization, given their personal characteristics. For internal CEOs, misfit around personal characteristics is less likely, given that they have already successfully worked in the hiring company. Challenges more often relate to their ability to step up from the more limited responsibility of an executive position to the CEO role and their ability to drive the evolution of the strategy beyond its current status quo. A second challenge for external CEOs with evolution mandates arises when they try to push a too-radical and speedy departure from the existing strategy. Incoming CEOs face the challenge of balancing the extent of change that is needed to strengthen implementation or shifting the priorities within the strategic direction with the risk of hampering what in an evolution mandate is typically a well-working overall strategic position and direction. As Mohsen Sohi from German family-owned conglomerate Freudenberg explained: While I was pushing for cultural change, there are many elements in our culture that have been here for decades and that I personally take pride in and want to preserve. For us it is the ideal of

evol u tion  – adaptation within bo u ndaries

entrepreneurship that goes all the way back to the founder of the company – Carl Johann Freudenberg. I want to maintain it. I had to figure out the elements of our culture that we needed to change and the elements that we wanted to preserve and strengthen. Especially for a CEO who comes from the outside, this balance between change and preservation is often not easy, in particular at the beginning of the tenure when the new CEO brought in from the outside does not yet fully understand the company. Given that evolution mandates often have a long-term time horizon, incoming CEOs may be tempted to engage in change too rapidly without finalizing the implementation of prior strategies, thereby leaving the organization with fragile or semi-implemented solutions that are a poor platform for further evolution.

Notes 1 Thomas Keil and Marianna Zangrillo, “Don’t Set Your Next CEO Up to Fail,” MIT Sloan Management Review 61, no. 2 (2020). 2 Marjorie Censer and Jim Tankersley, “In Trying Times, Defense Companies Turn to Women,” Washington Post, March 11, 2013, www.washingtonpost.com/ business/economy/in-trying-times-defense-companies-turn-to-women/ 2013/03/11/cda5c316-8a58-11e2-98d9-3012c1cd8d1e_story.html. 3 Henry Mintzberg, Structure in Fives: Designing Effective Organizations (Englewood Cliffs, NJ: Prentice Hall, 1983). 4 www.freudenberg.com/newsroom/press-releases/detail/management-boardchanges-at-freudenberg/#. 5 Ayse Karaevli and Edward J. Zajac, “When Is an Outsider CEO a Good Choice?,” MIT Sloan Management Review 54, no. 4 (2012). 6 Timothy J. Quigley and Donald C. Hambrick, “When the Former CEO Stays on as Board Chair: Effects on Successor Discretion, Strategic Change, and Performance,” Strategic Management Journal 33, no. 7 (July 2012). 7 www.clariant.com/en/Corporate/News/2018/09/Clariant-and-SABIC-­ enter-Governance-agreement-defining-the-long_term-strategic-relationship. 8 www.reuters.com/article/us-clariant-ceo-exit/clariant-ceo-exits-abruptlyrenewing-turmoil-at-swiss-group-idUSKCN1UJ0FO. 9 Robert Hooijberg and Nancy Lane, “How Boards Botch CEO Succession,” MIT Sloan Management Review 57, no. 4 (Summer 2016).

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4 TRANSFORMATION – BRINGING THE ORGANIZATION TO THE NEXT LEVEL

Paul Hartmann AG is a typical representative of German family-controlled companies and looks back at over 200 years of history. Today, Hartmann is a European leader in the medical supplies industry with revenues of over two billion euro and with a global growth ambition. In 2012, when the board started to look into the appointment of a new CEO, due to the planned retirement of the incumbent, its assessment of Hartmann’s capabilities relative to that ambition suggested a next step in that direction. As Andreas Joehle, CEO of the Paul Hartmann AG between 2013 and 2018 explained: When I arrived, we had a very strong foot print for Germany and maybe Europe. And there was a great desire or even the necessity to develop Asia more strongly, to look at the USA and South America. But Hartmann was still very German centric and strongly aligned with the German management framework. We wanted to grow internationally, but we were in need of more international diversity

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among the workforce. Financially the company was doing well and is still doing very well. That was not the topic. So not a turnaround case, but really the question “how can you take Hartmann to the next level? How can we develop further? How can we become more international? How do we get other methodologies and strategies in place? And how do we take as many people as possible with us on the journey?” So it was really the question of how can we create a sustainable change without now turning the company upside down and leaving it in shambles. To lead this transformation, Paul Hartmann AG’s board chose an outsider to the company. Andreas Joehle had worked in increasingly senior positions for a variety of companies in the medical industry including 3M, Coloplast, Medtronic International, and Mölnlycke Health Care and had led change assignments in each of these companies. Over the next five years, he led a fundamental transformation of Hartmann, in which he not only shifted the strategic focus onto becoming a global player but also transformed the organization to create a platform to support this ambition.

What are transformation mandates? Transformation mandates, the strategic mandate for CEOs that we discuss in this chapter, are fundamentally different from the continuation and evolution mandates covered earlier. Where the core of the earlier mandates is stability and gradual evolution, transformation mandates are characterized by wholesale and, at times, dramatic changes of strategy and organization that often depart radically from the status quo. CEO succession is often instrumental in kicking off the change and providing vision, direction, and leadership to transform the company.

When do boards choose a transformation mandate? Boards choose transformation mandates • •

when they view the need to fundamentally reposition the company; when technological or regulatory change alters the competition in the industry in a radical way; and

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•

when they aim to transform the organization to a more advanced level to be able to fulfill their strategic ambition. Repositioning the company

Even in the absence of dramatic environmental change, sometimes boards simply come to the conclusion that the current strategy is no longer a winning formula, and a radical departure is needed. Sometimes such situations arise from slow performance decline over a long term, in which a company gradually loses its dominant position within the industry or more generally falls behind in performance, strategic positioning, and at times investors’ expectations. Without a fundamental strategy rethink, even good companies may, over time, drift into oblivion. Such instances are often the case when the company has been running under an existing management team for a (too) long period of time, and strategy updates have been characterized by minor adjustments. In such a situation, boards may be well advised to define a transformational mandate that starts with a new strategic orientation of the company. And while they may not always be able to indicate the clear goal, the existing challenges must be clearly identified and communicated to the candidate, who should be able to immediately relate to them. Heidelberger Druckmaschinen is a good example of this need for repositioning. The company had suffered a steady decline of its core business in high-end printing machines for a decade. As Rainer Hundsdörfer, CEO since 2016, explained: For decades, Heidelberger has been a machine manufacturing company in Germany. We were highly profitable with strong growth until 2008, when the market began to change. Heidelberger and the entire industry got into difficulties, with the result that Heidelberger has virtually halved since 2008: from almost five billion in sales to two and a half, from 22,000 employees to around 11,500. To get back on a road to better results, the board assessed that it would need to reposition the company to take advantage of a number of new opportunities that had emerged around digital printing and on-demand printing in packaging and advertising. These opportunities, however,

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would require not only a different strategy but also a very different approach to the business, including a changed business model. To engage in this transformation, in 2016 the board of directors hired Rainer Hundsdörfer, with the intention of redirecting the corporation onto a new path. An industrial engineer by training, Hundsdörfer’s career had included a number of leadership positions in the machinery industry. His mandate was to stabilize the company and fundamentally transform Heidelberger from a traditional manufacturer of machinery to an integrated digital solutions provider. Responding to fundamental change Another common reason for boards to choose a transformation mandate is when a disruptive industry change rapidly occurs, due to technological innovation or regulatory change, for example. While most innovation is incremental in nature and therefore does not fundamentally threaten incumbent companies, some technological innovations create discontinuities that have the potential to make existing capabilities obsolete and fundamentally alter the market structure and competitive dynamic.1 When disruptions occur, dominant companies in the industry tend to be blindsided, and only those who respond quickly and engage in a fundamental transformation tend to catch up.2 Prominent examples of such disruptive innovations were the internet innovations for retail, content digitalization for telecommunications and media industries, and advances in battery technologies in the automotive industry. Recently, digital technologies – in particular, machine learning and artificial intelligence – have threatened established companies across a large number of industries by allowing for different business models and fundamentally altering the economics of many industries.3 An example of the industry change that results from digital technologies is the technological change in the global access and security industry that we discussed in Chapter 2, which forced the Kaba Group to rethink its strategy. While in the past, access and security systems were often mechanical (i.e., locks), with the increasing digitalization and integration of information technology and security systems, today access and security systems are often integrated digital solutions with mechanical, electronic, and digital components.

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To stay competitive in its industry, the board of Kaba Group realized that the company had to transform its technology base and business model. Against this background, Kaba’s board considered the profile and needed competences of the next CEO. The requirement for deep knowledge of IT systems made a search among leaders in its own industry less likely to bring a candidate with the right know-how. For that reason, the board approached Riet Cadonau, who at the time was the CEO of the Swiss-based telecommunication solutions provider Ascom Group and already a member of Kaba’s board. Cadonau’s career had focused on global ICT companies, and he had already been appointed to Kaba’s board because of his expertise in information and communication technologies. Cadonau’s mandate was to redirect Kaba’s strategy towards ICT-based access and security systems, develop the necessary culture and capabilities in the company, and further grow the company internationally. Given Cadonau’s deep expertise with digital technologies from his career in ICT companies, he seemed to the board to be the ideal candidate to drive Kaba’s future in a more and more digital world. Transforming to the next level Some transformation mandates are less focused on changing the strategic direction or repositioning the company, but rather focus on fundamental organizational transformation within the current strategy framework. In these transformation mandates, the goal is less creating and executing a new vision and strategy and more fundamentally transforming all aspects of the organization to create a platform for reaching the strategic ambition. Several types of companies commonly encounter this need. When companies like Google, Facebook, and Uber grow from being start-ups to being multi-billion-dollar companies, often organizational structures systems and processes do not keep pace with the growth of the company, leading to the need to eventually transform the organization.4 For instance, during its rapid growth, Google hired Eric Schmidt, an experienced software executive, as its first outside CEO in 2001 to lead the professionalization of the company. Also, if organizations grow through multiple acquisitions, over time it becomes necessary to restructure to be able to leverage the acquisitions.5 For instance, one CEO we interviewed had joined a company that we

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will call Loadtec. Loadtec had just come out of a series of acquisitions in which it had acquired its smaller competitors Alpha, Beta, and Gamma. He explained: When I  joined Loadtec in 2010 the problem was that there was no Loadtec. There was Alpha, Beta and Gamma. And there was a head office called Loadtec. Nobody felt they belonged to Loadtec. So we decided that we would have to do a transformation. We had to first decide if we keep all three business areas. And then we decided to create one Loadtec. Family-controlled companies or companies with a national or regional footprint and growth ambitions often face a similar need for transformation under the heading of professionalization. Such companies frequently have traditional organizational structures and management systems that are not well suited for their grown ambitions to be global players. An example of this type of transformation situation is the appointment of Erwin Mayr at Wieland Werke, a specialist in copper and copper alloy products, founded in 1820 and headquartered in Germany. A typical example of family-controlled companies, Wieland Werke is one of the European leaders in its segment but continues to operate in the tradition of a family-controlled business. Following the retirement of a long-serving CEO, the board took the opportunity to define a new vision and ambition for the organization and seek a CEO who could drive that ambition. The choice fell to Erwin Mayr, an executive who had spent most of his career in US multinationals. When he took office in 2017, he started a transformation journey. In the words of Mayr, “the board told me that my task was to kiss the sleeping beauty awake.” To prepare the organization for an aggressive international growth path that culminated in a merger with Global Brass and Copper Holdings, a US player in the same industry, which increased the size of Wieland Werke by 50  percent, Mayr engaged from the outset in a program of organizational and cultural change, bringing structures and processes from the multinationals he had worked in before. Mayr explained: Of the top thirty people in the leadership, none had seen anything on the outside in the last fifteen or twenty years. They may not

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know what is world-class in many contexts, whether it is strategic planning, whether it is global processes or whether it is occupational safety. Mayr’s strategic mandate thus involved first and foremost the creation of a strategic platform, through organizational transformation, that would enable Wieland to grow more aggressively internationally and thereby achieve the board’s strategic ambition.

CEO prof iles for transformation Transformation mandates are about departure from the status quo in terms of either strategic position, direction, or organization, and therefore a CEO who represents a departure from the past is the natural choice. It could be an external CEO with no legacy with the current organization, and therefore less restrained about making changes, or an internal candidate, if the profile is such that it can credibly signal departure from the past, for instance, by symbolizing visible differences from the dominant leadership profile in the corporation. External CEOs – the natural choice For transformation mandates, external CEOs are often the first choice because, as a long term CEO explained, “If you want a change of the principles of the business model, it’s better to bring in somebody from outside who thinks differently.” By definition, external CEOs are unencumbered by the organization and the choices from the past and therefore may find it easier to embark on a new strategic direction. They are also less likely to be tied up in a web of relationships within the organization, giving them an advantage in making unpopular personnel changes that tend to be required with transformation. In the words of Rainer Hundsdörfer of Heidelberger Druckmaschinen: I have the advantage of not having a history in the company, and I  always tell people: “Colleagues, for me it’s very simple, I  have no friends, I have no enemies, I have no preferences, I can do my job here completely unemotionally.” That’s exactly what leaders who have been 25 plus years in the organization can’t do as a rule.

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I know very few leaders who can really manage to do this without ­emotion – you have to make objective decisions. An additional argument for external leaders is that transformations take the organization in a new direction, where internal leaders may lack required experience and know-how. Jens Alder, chairman of Swiss energy company Alpiq and former CEO of Swisscom and TDC Denmark, described the considerations he went through with the board when appointing a new CEO: “Ideally you would want to compare the best internal candidate with the best external candidate. But in a transformation you don’t have that option. The possibility of an internal candidate is simply not there.”

Inside outsiders – an alternative choice Although less common, an exceptional internal candidate may be a good fit for a transformation. Internal candidates can successfully depart from the past CEO if they are independently minded and do not reflect the current dominant position. Often such CEOs have been called inside outsiders.6 Vas Narasimhan at Novartis is an interesting case. Novartis has long been one of the global leaders in the pharmaceutical industry. From 2010 to 2018, under the leadership of Joseph Jimenez, Novartis had pursued a strategy of diversification into a broad range of pharmaceutical-related businesses and had been tightly controlled by a limited set of managers in the corporate headquarters. With ever-increasing competition in the pharmaceutical industry, the board of directors, under the leadership of chairman Jörg Reinhardt, started to rethink the strategic direction and came to the conclusion that a new strategic focus on innovation-based ethical drugs would be needed to stay competitive going forward. With a clear goal of changing strategic direction, and without any financial distress to set additional limits, the board opted for a CEO change. Counter to what we have observed in similar cases, rather than going to an external candidate already leading another pharmaceutical company or promoting one of the existing business heads, the board chose Vas Narasimhan as the next CEO. Narasimhan, a medical doctor by training, had pursued a career that led him from consulting at McKinsey

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to a variety of development roles at Novartis. His appointment came as a surprise to many observers since he had not been leading any of the core businesses of Novartis. However, as chairman Jörg Reinhardt pointed out, it signaled the very mandate of change the board had in mind: Some elements were particularly important to me in the appointment of Vas Narasimhan. One is the scientific element. This company is driven by innovation, nothing else. That may have been different twenty years ago when marketing was at the top of the list, but today innovation is the driving force and without really significant growth in innovative products, our company will not survive. We need people who understand this and who can get involved from the top in innovation and who can challenge research. Reflecting on this mandate and the need for change at Novartis, Narasimhan explained to us: We weren’t in a turnaround situation in a financial sense, but I think there was a clear direction to think bigger; to think what can we do to really transform the company to get to the next level of fulfilling our purpose. Bringing me as a physician scientist in as CEO was one symbol of that. During the initial months of Narasimhan’s tenure, Novartis finalized the divestment of two major divisions and embarked on a cultural transformation, decentralization of decision-making,7 and a renewed focus on innovation,8 all of which had the potential to fundamentally alter the DNA of the company. While the choice of an internal candidate for such a strategic departure may appear counterintuitive, Novartis’s story is similar to those in which an external CEO is appointed. Narasimhan had started his career both training as a medical doctor and pursuing a master’s in public policy. He had worked in public health before embarking on a business career with McKinsey. His career at Novartis was unusual as most of his appointments had been in research-and-development-related roles, whereas the CEO position typically had been appointed from among the business unit leaders.

transformation  – the next level

He explained: I have been an outsider in terms of what I believe around culture and leadership and how to make teams work. But at the same time I have the advantage of knowing the organization. I think it would have been difficult for a complete outsider to have done all of these actions we did in my first year. You’d have to understand those businesses we divested. Another example of a successful transformation led by an internal CEO is Satya Nadella at Microsoft. Microsoft has long been under the direct or indirect control of its larger-than-life founder Bill Gates. When Bill Gates stepped back from the CEO role, he was succeeded by his close confidant Steve Ballmer. Where Bill Gates was the visionary leader, Steve Ballmer was the intensely operations-focused leader. Under Steve Ballmer, Microsoft increasingly fell behind on important industry trends, and several of its expansion attempts into adjacent businesses like mobile phones were unsuccessful, despite massive investments. As a result, many industry observers viewed Microsoft as a laggard in the fast-moving, online-driven ICT world. In 2014, after 14 years as CEO, Steve Ballmer retired from the CEO role and was succeeded by Satya Nadella in an internal succession. An engineer by training, Nadella had a short stint at Sun Microsystems before joining Microsoft and steadily rising through the ranks. Before becoming CEO, he had led the group’s enterprise and cloud businesses, which at the time were outside the mainstream of Microsoft’s business but became more important due to changes in the ICT industry. As CEO he led a strong transformation, moving Microsoft from an inward-oriented company towards relying on open business models and technologies, thereby becoming one of the leaders of a cloud-centric business model. What these examples suggest is that inside CEOs can succeed with transformation mandates if they are chosen for independence of mind and action and for not being part of the mainstream. As a simple litmus test, boards may ask themselves if the appointment would strike stakeholders within and outside the organization as a surprise and a signal for change. If not, the internal candidate is probably a representative of the organization’s past and not the right candidate for a transformation mandate.

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The person matters more than the background Rather than reducing the choice of the CEO profile down to insider versus outsider, it is important to recognize that the odds of success depend upon the leadership qualities of the candidate, given that transformation mandates often are more challenging than continuation and evolution mandates. As Olaf Swantee, former CEO of both the British telecommunications operator EE and the Swiss telecommunications operator Sunrise, explained: “The starting point of a transformation is leadership; and to find someone who can lead a transformation you need to make sure the leadership characteristics of that person are compatible with what you want to achieve.” In line with the special needs of the transformation mandate, the profiles of CEOs should include not only experience related to the desired strategic repositioning, such as experience with global processes as in the case of Erwin Mayr at copper products manufacturer Wieland Werke or experience with ICT technologies as in the case of Riet Cadonau at access and security firm Kaba but also deep experience in organizational transformation per se, as well as the right character with the personal qualities required for the specific mandates. In fact, successful transformation leaders often view themselves first and foremost as organizational change catalyzers. For instance, Andreas Joehle from the opening example of this chapter characterizes himself as a transformation leader: My role tends to be to manage change. I get appointed when the board says we have to change, we have to reposition things, we have to take people with us. If they say they need an administrator, I am absolutely the wrong person. That’s not for me. Where the continuation and evolution mandates may require leadership skills focused on fine-tuning, transformation mandates may require transformational leadership skills.9 Transformational CEOs therefore are often serial CEOs who have mastered the art of changing organizations, such as Pekka Lundmark, who as a CEO led transformations at the publicly listed Finnish corporations Hackman, Konecranes, Fortum, and now Nokia.10

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LEADERSHIP QUALITIES FOR TRANSFORMATION MANDATE Transformation mandates are often the most challenging CEO mandates and require CEOs with special leadership skills. There are some specific leadership skills that, while always important, become of the essence for the success of a transformation mandate. The following is a compact checklist to support the search or nomination process. Inspirational. Can the candidate inspire the whole organization? Bold. Is the vision of the candidate compelling? Authentic. Is the candidate authentic or playing a role? Transparent. Is the candidate transparent in decision-making and communication? Compassionate. Does the candidate have the compassion to lead through painful changes? Humble. Is the candidate humble enough to recognize the magnitude of the challenge? Persistence. Does the candidate have the persistence to push the changes through obstacles, accepting defeat, reiterations, and new innovative ways forward?

Common characteristics and problems with the transformation mandate Transformation mandates are about change and radical departure from the past. As a result, transformation mandates have an intrinsically higher risk of failing than other mandates. High-profile failure examples abound for both internal and external successions. One of the most prominent failure examples is Marissa Meyer at Yahoo. The company had been one of the early winners of the internet world but then fell behind competitors such as Google in key areas like internet search. To transform the company, in 2012 the board of Yahoo approached Marissa Meyer, then VP at Google, to lead the corporation. However, her tenure at Yahoo was overshadowed by a large number of highly criticized decisions, which failed to renew Yahoo and ultimately led to the company being sold to Verizon.

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While many failed transformations can be linked to the choice of a wrong CEO, not all are. In response to our observation that many transformations following a CEO succession fail, Mario Greco of Zurich Insurance Group said: I think that is a little bit of a self-fulfilling prophecy. The problem is that an organization performs much better in continuity than in transformation, so I think this failure is a proxy for how difficult transformations are and how many transformations fail in general. It is therefore important that incoming CEOs and the boards hiring them have realistic expectations regarding the chances of success. With the odds stacked against transformation needs, the bar to succeed is higher, and it is therefore important to identify what characterizes successful transformation mandates and also to consider carefully the personality of the leader to be appointed, to see if a potential match exists. Success or failure for CEOs in transformation mandates often begins with a clear signal of what the board wants to accomplish with the CEO change. As Chairman Jörg Reinhardt of Novartis underlined: With the appointment of a CEO you make a statement, internally and externally. Given the signal character of CEO change, the board should utilize the opportunity to create a positive start for the incoming CEO by communicating its transformation intent with the CEO change. A strategic transformation needs to be understood as a long-term change that may run over two or more strategy periods and may take as long as a decade to show its full impact. Norbert Klapper, CEO of the Swiss textile machinery company Rieter, explained: Transformation is a marathon, and sometimes there is a point where you say this is all going too slow. We need to push it, but you need to be patient. To try to balance the transformation, to strike a balance between pushing the teams sufficiently and, at the same time, not stretching too far because they will need to run for a long time.

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LET’S RECAP: THE TRANSFORMATION MANDATE IN A NUTSHELL What is it? Transformation mandates focus on radical departure from the strategic direction and organizational transformation over longer periods of time. When is it used? Transformation mandates are used when the board sees the need for strategic repositioning of the company, when fundamental change alters the industry structure and dynamics, or when the organization needs to be fundamentally transformed to enable the strategic ambition. CEO profile: Transformations are often led by external CEOs with transformation experience or internal CEOs if the individual has a profile that reflects independence of the status quo (inside outsiders). Common characteristics: Transformation mandates often fail given their inherent difficulty. Successful transformations often rely on several building blocks around resetting purpose and vision, revisiting activities and the business portfolio, broad organizational changes, and cultural change. Common problems: In transformation mandates, problems often arise from the difficulty of designing and leading a transformation and from a misfit between the individual and the mandate.

Transformation mandates often have several common building blocks. Incoming CEOs often reset purpose and strategic vision. Olaf Swantee explained: You have to create a sense of purpose. The human being can only get excited about purpose; a purpose is a different picture from where you are today, it’s a bit scary, but you have to have the confidence that it’s maybe possible to reach it. Vision alone, however, is not enough. Transformation often includes revisiting the composition of the business portfolio, a task that does not come naturally to all leaders. Greg Poux-Guillaume, CEO of publicly listed fluid engineering company Sulzer, described the difficulty of this process:

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Corporate executives are often incapable of doing something that most private equity people do almost without thinking: talk about value. We often struggle to identify the value drivers and tend to focus on “we have great products and good margins” while ignoring aspects like capital intensity or cash flow resilience. It makes portfolio discussions – what fits, what doesn’t – overly emotional. Sometimes a business is just not a good business. And sometimes it is a good business, but not a good fit for the company’s portfolio. Given the need to adjust the business portfolio, compared to leaders for continuation and evolution mandates that often exhibit deep familiarity with the main business of the corporation and its operational details, transformation leaders more often need to be portfolio managers who can take some distance from the individual business as well as from the organization itself. Transformation also often requires broad organizational changes to enable the new direction. For instance, during the first two years of his tenure, Jan Jenisch, CEO of global cement industry leader LafargeHolcim, focused on radical decentralization of the organization and simplification of the corporate structures to enable more agile decision-making and break the political stalemates that had previously characterized the organization. In some instances, changes in centralization or decentralization within a transformation may mostly serve the purpose of unfreezing an organization and preparing it for further changes.11 However, changes designed primarily to shake organizations up may backfire if employees see them as disconnected from a broader vision and do not embrace them. Finally, transformation mandates are very often also accompanied by cultural change, as deeply embedded cultures can become an obstacle to other organizational changes. Stefano Cao, CEO of Italian oilengineering company SAIPEM, explained: I think it gets to a point that the culture is so strong that, you know, the strength of the culture somehow may become an obstacle to overcome in order to prepare the company for future challenges. So you need to create opportunities for a bit of cultural change without disrupting the strength of the organization but also creating conditions for some fresh blood to enter.

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Compared to the mandates we discussed earlier, the key challenges in the transformation mandate arise first and foremost from the difficulties in designing and leading a successful transformation. However, in addition to these inherent difficulties of transformation mandates, as with other mandates, a misfit between the organization and the chosen CEO often plays a role in failure. Marissa Meyer’s tenure at Yahoo is a case in point. Despite her credentials at Google, she had never led a major transformation of the kind required at Yahoo, raising a question around whether she was the ideal choice to lead the transformation of a company that had been experiencing a long-term decline. Finally, there have been examples of newly appointed outside CEOs who isolated themselves from the organization and, as a result, never managed to create a companywide momentum for the intended transformation but instead created a culture of mistrust that led to many high performers leaving the business and, ultimately, to the failure of the strategy.

Notes 1 Rebecca M. Henderson and Kim B. Clark, “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms,” Administrative Science Quarterly 35, no. 1 (1990); Michael L. Tushman and Philip Anderson, “Technological Discontinuities and Organizational Environments,” Administrative Science Quarterly 31, no. 3 (1986); Philip Anderson and Michael L. Tushman, “Technological Discontinuities and Dominant Design: A Cyclical Model of Technological Change,” Administrative Science Quarterly 35 (1990). 2 Clayton M. Christensen, Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Boston, MA: Harvard Business Review Press, 1997); Clayton M. Christensen and Michael Overdorf, “Meeting the Challenge of Disruptive Change,” Harvard Business Review 78, no. 2 (2000); Clayton M. Christensen, Scott D. Anthony, and Erik A. Roth, Seeing What’s Next (Boston, MA: Harvard Business Review Press, 2004); Michael L. Tushman, William H. Newman, and Elaine Romanelli, “Convergence and Upheaval  – Managing the Unsteady Pace of Organizational Evolution,” California Management Review 29, no. 1 (Fall 1986). 3 Ajay Agrawal, Joshua Gans, and Avi Goldfarb, Prediction Machines: The Simple Economics of Artificial Intelligence (Boston, MA: Harvard Business

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4 5

6 7

8

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1 0 11

Review Press, 2018); Larry Downes and Paul Nunes, “Big Bang Disruption,” Harvard Business Review 91, no. 3 (2013). Larry E. Greiner, “Evolution and Revolution as Organizations Grow,” Harvard Business Review 50, no. 4 (1972). Harry G. Barkema and Mario Schijven, “Toward Unlocking the Full Potential of Acquisitions: The Role of Organizational Restructuring,” Academy of Management Journal 51, no. 4 (August 2008). Joseph L. Bower, The CEO Within: Why Insider Outsiders Are the Key to Succession Planning (Boston, MA: Harvard Business Review Press, 2007). Chole Taylor, “Why the CEO of This Multi-Billion Dollar Firm Wants to ‘Unboss’ Companies,” CNBC, 2019, accessed June 26, 2020, www.cnbc. com/2019/10/29/why-novartis-ceo-wants-to-unboss-companies.html. Vas Narasimhan, “Novartis CEO: We Need a Different Approach to Drug Discovery,” Fortune, March  12, 2018, https://fortune.com/2018/03/12/ novartis-ceo-vas-narasimhan-drug-discovery/. Daniel Goleman, “Leadership That Gets Results,” Harvard Business Review 78, no. 2 (March–April  2000), Daniel Goleman, “The Focused Leader,” Harvard Business Review 91, no. 12 (December  2013), Charles M. Farkas and Suzy Wetlaufer, “The Ways Chief Executive Officers Lead,” Harvard Business Review 74, no. 3 (May–June 1996). For more detail on serial CEOs and Pekka Lundmark, see Chapter 10. John P. Kotter, Leading Change (Boston, MA: Harvard Business Review Press, 1996).

5 TURNAROUND – BREAKING WITH THE PAST UNDER PRESSURE

In 2014, with great hopes and ambition, UK-based AMEC plc acquired its Swiss competitor Foster Wheeler AG to form Amec Foster Wheeler, a publicly listed consultancy, engineering, and project management services company providing services globally in the oil, gas, mining, power, and environment markets. Despite high hopes for the merged company,1 business did not develop as planned. With the downturn in the oil and gas sector, which constituted the company’s primary market, Amec Foster Wheeler’s financial position increasingly deteriorated, leading to an unsustainable financial position. In 2016, to stage a turnaround, the board appointed Jonathan Lewis, an executive from the US oil and gas services company Halliburton. 2 Lewis had risen through the leadership ranks at Halliburton, gaining experience in turning around f ledgling business units, and seemed to be a good match due to both his industry and turnaround experience.

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When Lewis joined, he realized that Amec Foster Wheeler was in a difficult financial position and at risk of defaulting on its debt. Lewis described the turnaround he faced in the following words: At Amec Foster Wheeler I  faced the need for a complete turnaround – a wholesale transformation of the organizational structure, a strategy refresh, a cost-competitiveness initiative, and a review of how we ensure we have meritocracy in our staffing decisions. I also had to spend a lot of time with customers, really getting to know them and understanding their needs, and addressing poorly performing contracts. And then I have spent a considerable amount of time with institutional shareholders and sell-side analysts to develop a plan to heal the balance sheet. Amec Foster Wheeler was overly indebted, and reducing debt was the only possible option to lead the company out of a dangerous path and towards a brighter future. Lewis set out to address Amec Foster Wheeler’s operational and financial problems as the top priority. He explained: What is interesting about my time in Amec Foster Wheeler is the speed at which everything happened. I basically went from coming on board to having a completely revised plan for the organization between May and November of that year, including the case for a £500 million equity raise. As Lewis was in the process of executing the capital increase through a secondary offering, Amec Foster Wheeler was approached by the Wood Group with a proposal of an acquisition and ultimately was sold at a premium of 29 percent. The board clearly had a good hunch on what type of mandate they wanted to give and found the perfect match to pursue their ambition.

What are turnaround mandates? Amec Foster Wheeler was an extreme case of the situations that our final mandate – the turnaround mandate – covers. In turnaround situations, the company not only faces the need for a strategic and operational revamp, but the situation also tends to be compounded by financial

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distress, potential threats to the very survival of the company, and the short-term pressures arising from this. In this mandate, CEOs not only need to transform the company but must also ensure short-to-mediumterm survival, creating substantial additional pressure on the incoming CEO. While Amec Foster Wheeler is extreme in the brevity of the timescale, time frames in turnaround mandates are inevitably compressed.

When boards choose turnaround mandates Situations that suggest a turnaround mandate tend to combine the characteristics of the transformation mandate – the need to change strategic direction and reposition the company and the need for an organizational change – with intense financial difficulties. When boards define a transformation mandate, the company has likely experienced multiple years of financial difficulties and often some failed attempts at transformation and may be heading towards a potential default and bankruptcy, as in the opening example of Amec Foster Wheeler. In such situations, boards utilize the CEO change as a signal for a fundamental restart of the company. In order to leave no room for interpretation, or in some cases to boost the market confidence, they may make a press announcement to clearly communicate their turnaround intention. These situations are particularly challenging since they combine the need for strong short-term measures with the need for a more fundamental transformation, and the response of the employees, customers, and stakeholders at large is always highly unpredictable. While this is true for any CEO change, it holds even more in turnaround mandates, in which the actions need to be fast and, at times, brutal. Another, albeit less dramatic scenario arises when the strategic positioning and direction are not as challenging, but the company has fallen into financial difficulties, perhaps due to flawed management decisions or an external shock. When in 2012, in the midst of the euro zone debt crisis, Generali had fallen into severe financial distress due to a web of cross shareholdings it was entangled in, the board saw no alternative but to appoint an external CEO and chose Mario Greco. Following undergraduate education in economics in Rome and a master’s degree in economics in the US, Greco had spent his initial career at McKinsey, followed by additional career steps in the financial services industry at RAS, Allianz, Eurizon, and Zurich Insurance Group.

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As CEO, Greco focused on slashing the web of shareholdings and reining in costs to boost the financial position of Generali, successfully turning around the otherwise-healthy company within a one and a half year period. He explained: Generali was a case of a turnaround of a financially distressed company with an otherwise working business. So, what I had to do at Generali was, the classic financial turnaround, where in the first year and a half I had to restructure the debt position, to sell assets, to buy out minorities in different countries. Yes, I  also improved the business results but it was fundamentally a financial turnaround.

The CEO prof ile for turnaround mandates: external CEOs – the natural choice Turnaround mandates are the natural habitat for external CEOs, given their lack of legacy with the past. They have not been involved in past decisions, are less likely to be held back by relationships with individual management team members, and are not likely to be biased toward a specific business of the company, as internal candidates often are. This absence of baggage from the past gives external CEOs an advantage in making the harsh decisions and brutal cuts that are necessary to save companies in financial distress. In an interview, Dieter Rickert, long-term headhunter explained: In a turnaround you need to look at everything without taboos. Also the things that the generations before you have not dared to do. So there may have been a family entrepreneur who founded the factory in the same place 35 years ago and although the factory is now completely in the wrong place and you make endless losses, he kept keeping it alive because he didn’t want to admit to himself that it was no longer relevant. For someone coming from the outside it is much easier to just close it. You have that factory in India, that the Chairman opened. An insider can’t close it easily even if it should be closed. It is a holy cow. But when there is an outsider it suddenly can be done.

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Given these advantages, in a situation of financial distress, stakeholders may view appointing external CEOs as a signal that the board has recognized the severity of the situation and is taking decisive corrective action. For instance, when in 2017 the board of British Capita appointed Jonathan Lewis as its new CEO,3 the media was quick to point to Lewis’s track record in turning around businesses,4 suggesting that the appointment of a turnaround specialist meant that the board had realized the severity of the problems that Capita was facing and was ready to take decisive action. A common observation, on the other hand, is that in turnaround situations, internal CEOs tend to have difficulties making the necessary cuts fast enough, given that they have been part of the decisions that created the current problem or may simply be emotionally attached to certain businesses or too close to certain management members. GE is one of the most studied companies in the world. It rose to fame under CEO Jack Welch for being a highly successful conglomerate at a time when conglomerates had fallen out of fashion with shareholders5 and was known as an organization that produced a steady flow of internal CEO candidates. After the retirement of Welch in 2000, the board appointed Jeffrey Immelt. During Immelt’s 17-year tenure, performance gradually declined, and when he stepped down from the CEO position in 2017, GE was in a financial and strategic crisis. Despite the challenging situation, the board chose an internal successor with John Flannery. Flannery had risen through the ranks, making GE India successful and staging a turnaround of GE Healthcare. However, his tenure as CEO of the group was under a bad star from the outset. While the board had hoped for a rapid turnaround given his in-depth familiarity with the organization, Flannery’s earlier successes could not be replicated, and as an insider, he was not able to make prompt decisions or execute decisive action. The board grew increasingly disappointed with the slow progress and lost faith in Flannery’s capability to improve GE’s fate and ultimately turn the company around.6 Flannery was replaced after 14 months, with great disappointment from the board and the market. Given the difficulty of internal CEOs undoing a past they have themselves been actively part of, internal candidates who lead successful turnaround mandates are the exception.

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One such exception, however, is the appointment of internal candidate Kaz Hirai at Sony. Following the financial crisis of 2008, Sony had fallen upon hard times. Under its first foreign CEO, Sir Howard Stringer, the company had engaged in an unprecedented expansion and diversification and had increasingly become too complex to manage. In 2012 Sir Howard Stringer was replaced by Kaz Hirai, at the time their youngest CEO ever, who had the clear mandate to turn Sony back into a profitable business. To do so, Hirai engaged in a major restructuring, simplifying the organization to drive performance management and make divisional management more accountable. He further sold off several non-core businesses and refocused emphasis on traditional Sony values such as innovation. What made Hirai successful with a turnaround mandate even though he came from inside Sony? While there is never one clear-cut recipe for any situation, Kaz Hirai’s behavior was similar to that of Vas Narasimhan at Novartis, already discussed in a previous chapter. Both were inside outsiders.7 Despite being hired from inside, Hirai was an outsider to the dominant culture at Sony, with limited links to the previous CEO and power structure. Having grown up in North America, Kaz Hirai appeared more comfortable giving presentations in English rather than Japanese. Also, in a company dominated by engineers, he was only the second non-engineer leading the corporation, and his career path had gone through the game console business, outside the traditional core of Sony. The clear distance from the core of Sony made it easier for him to look at things with a more objective eye and, in the end, allowed him to make the difficult cuts and restructuring decisions needed in a turnaround situation. Irrespective of the internal or external origin, the profiles of turnaround CEOs share some common characteristics. Turnaround leaders often focus on turnarounds throughout their career. Take Jens Alder, former CEO of Swisscom and TDC Denmark and interim CEO of Alpiq. In each of the companies that Alder led, he managed turnarounds focused on bringing the cost back to a sustainable level. To gain this expertise, turnaround leaders typically acquire their early experience as leaders of business units, with profit and loss responsibility within larger corporations. For instance, Jonathan Lewis had managed two turnarounds of business units in Haliburton before he was appointed CEO of Amec Foster Wheeler. Similarly, Jens Alder had gained his first turnaround experience as a leader of underperforming business units.

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Given the focus on similar assignments, turnaround CEOs often learn to apply a more-or-less standardized set of actions to stabilize the companies they lead. Jonathan Lewis explained: Through the turnarounds I led I developed a flexible recipe. I have a template by which I assess businesses when I am asked to improve the performance of those businesses. I  have a framework with 30/60/90/180 days plans to figure out what’s working and what isn’t working and that guides my action. Similarly, Jens Alder described his considerations when accepting the CEO role at TDC Denmark: “TDC was like tailored to my capabilities. I was hired as CEO and that was a similar turnaround as back at Swisscom. My job was to undo their diversification, cut costs and then rebuild the company.” Like transformation mandates, the CEO profiles for turnaround mandates tend to emphasize portfolio generalists rather than experts in a narrow business segment. However, there are important differences between the profiles of a transformation leader and a turnaround leader, as Andreas Joehle, former CEO of Paul Hartmann AG, explained: On the one hand, there is the turnaround leader, who restructures companies that are in economic difficulties. That leader is focused on cost cuts and short term results. And on the other side, there is the transformation leader, who says “okay, we have something here that is on a plateau. If we want to go somewhere else or want to go to the next level, then we have to change. But that is a different profile.” The nature of turnaround situations is also such that a bold and quickpaced personality with strong analytical capabilities may be needed to face the wind without fear and pursue the goals despite the likely resistance and the negative emotional impact of drastic cuts on a business.

Common characteristics and challenges with the transformation mandate While every company situation leading to a turnaround is different, turnaround mandates have some common characteristics related to the overall

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degree of freedom the mandate provides the incoming CEO and the focus and timing of actions that are commonly needed. Turnaround mandates provide the incoming CEO with unusually high discretion. Boards defining a turnaround mandate are cognizant that drastic changes are needed, and as a result, CEOs may have the option of promoting and driving changes that in less-dramatic circumstances might be not feasible or may not have the board’s support. Turnaround mandates often have the following themes in common, making the expertise of the CEO who has handled turnaround situations before particularly valuable: • The time frame of the change is tight. • The CEOs need to be more focused on shorter-term actions than in any of the other mandates. • The type of actions that are needed in this type of mandate are often similar. Turnaround situations are characterized by the time pressure. Given financial distress, in turnarounds, there is a premium on fast actions, leaving an incoming CEO with little or no time to get to know the company first. In fact, where in a transformation, incoming CEOs may be able to first analyze the situation and devise a plan for action, in a turnaround, the situation dictates the pace of action, often leaving limited time for analysis and planning. As a result, incoming CEOs may be forced to initially focus on actions to stabilize the business before they can design a broader strategy. Jonathan Lewis talked about his turnaround at Amec Foster Wheeler: You need to ask yourself if you have got the breathing space to be working on long-term strategy or if the state of the business is such that your first job is stabilization, shoring up of the business so you can then afford the time to think about long-term strategy. You may get into this horrible situation where you know you don’t have a strategy but you know you are going to have to make some decisions in that strategic vacuum because the business is bleeding. You have to triage quite frankly. So, you have to be quite thoughtful about how you triage in such a way that you minimize a reduction in your long-term options.

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LET’S RECAP: THE TURNAROUND MANDATE IN A NUTSHELL What is it? Turnaround mandates focus on addressing financial distress and breaking organizational inertia in the short term. When is it used? Turnaround mandates are commonly used when the organization is in financial distress or when the need for transformation is combined with financial difficulties. CEO profile: Turnaround mandates are the natural territory of externally appointed turnaround specialists and, in rare exceptions, inside outsiders. Common characteristics: In turnaround mandates, the CEO has the highest decision discretion. Turnaround mandates often involve extreme time pressure. Actions in turnarounds often follow schematic templates. Common problems: Inside CEOs often face difficulty taking actions given that they are encumbered by past commitments. CEOs turning around the company may not be able to lead the next stage of development.

At the start, turnaround mandates are almost always focused on cost cutting and restructuring of operations, as well as asset disposal to shore up the financial situation as exemplified in the earlier example. It is this similarity of actions that allows turnaround leaders to develop templates that guide them quickly toward the right actions in an effective manner, despite the fact that, at times, they lack experience in the business of the hiring company. The three characteristics outlined here suggest that turnaround mandates are often very different from the transformation mandates we discussed in the previous chapter. For instance, Dieter Rickert, an experienced headhunter focusing on CEO appointments explained: You have to distinguish between turnaround and transformation. Most of the time, first comes turnaround phase. It’s all about restructuring. Drastic cuts are being made. Changes that should have been done a long time ago are finally being done. People are let go and things that don’t fit together are sold. But then comes the transformation phase and that’s a very different pair of shoes. That has nothing to do anymore with the restructuring. Is all about reinventing the company. Creating a new platform for future growth.

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Similarly, Mario Greco, who staged a transformation as CEO of insurance giant Zurich Insurance Group and led a turnaround at Generali, highlighted: A financial turnaround is something where you spend a lot of time with treasury people, with banks, with investors. A business transformation is something where you spend a lot of time with the countries, the CEOs of the countries, discussing operational performance, you meet distributors, you meet brokers, you meet clients. Given these important differences, turnaround mandates may suggest different profiles for a turnaround leader than for a transformation leader that boards should keep in mind when screening candidates. In many cases, turnaround situations also turn at some point to a more fundamental strategic transformation, although this latter stage is often led by a different CEO. Take, for instance, Jens Alder’s turnaround at TDC Denmark. Once Alder had stabilized the organization, another CEO was appointed by the private equity company that owned the business to lead the subsequent new growth phase. Often the reason for this replacement is the difference in profile and personality of fast-paced turnaround managers with their often-narrow set of templates, relative to the slower-paced but more flexible transformation managers. Headhunter Dieter Rickert explained: Do you remember Kajo Neunkirchen? He was a great turnaround and restructuring CEO. He was the right man when a company was about to go bankrupt and he once told me himself that he needs a certain size as a manipulative mass. He sold one company, pushed the next one in there and merged it and that was a big fly wheel he was turning. But when the restructuring was over, he was not the right person to lead the company into the future. Because he lacked entrepreneurial imagination and above all humanity. In a similar vein, Greg Poux-Guillaume, the CEO of Sulzer, explained: It is the difference between Lech Walesa and Vaclav Havel. It’s really hard to be the revolutionary and then also president afterwards. Most

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revolutionaries were terrible presidents and the other way around and there’s only a few examples where leaders managed to be both. In fact, given the unique profile required for the turnaround stage, all too often turnaround leaders develop a very distinct reputation. In addition to the need to potentially replace a turnaround leader for the transformation stage that may follow the initial turnaround mandate, the turnaround stage also has some unique challenges. These challenges can relate to either too little or too much action. As in the case of John Flannery discussed earlier, incoming CEOs may not take decisive enough actions or may not manage to deal with the adverse wind, and as a result, a turnaround attempt may fail to have an impact on financial performance. However, the opposite situation also needs to be monitored by boards. Since in a turnaround mandate the incoming CEO often lacks in-depth knowledge of the company, short-term actions may hamper the long-term strategic options of the company. To avoid this fate, a turnaround mandate requires an intense dialogue between the new CEO and the board.

Notes 1 BBC, “Amec Offers £1.9bn to Buy Swiss Rival Foster Wheeler,” BBC News, 2014, www.bbc.com/news/business-25711210. 2 Joshua Warner, “Amec Foster Wheeler Appoints New CEO, Reiterates Full Year Guidance,” Alliance News, 2016, accessed July 1, 2020, www.morning star.co.uk/uk/news/AN_1461740083176170700/amec-foster-wheeler-appointsnew-ceo-reiterates-full-year-guidance.aspx. 3 www.capita.com/news/capita-appoints-jonathan-lewis-new-ceo. 4 Jack Torrance, Alan Tovey, and Rhiannon Bury, “Who Is Jon Lewis, the Turnaround Specialist Hired to Sort Out Capita?,” The Telegraph, January 31, 2018, www.telegraph.co.uk/business/2018/01/31/jon-lewis-turnaround-speci alist-hired-sort-capita/. 5 Gerald F. Davis Kristina A. Diekmann, and Catherine H. Tinsley, “The Decline and Fall of the Conglomerate Firm in the 1980s: The Deinstitutionalization of an Organizational Form,” American Sociological Review (1994): 547–70. 6 George Bradt, “Executive Onboarding Note: The Root Cause of Ge CEO John Flannery’s Failure: Speed and Decisiveness,” Forbes, October 1, 2018,

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www.forbes.com/sites/georgebradt/2018/10/01/executive-onboardingnote-the-root-cause-of-ge-ceo-john-flannerys-failure-speed-and-decisive ness/#3a388e172826. 7 Joseph L. Bower, The CEO Within: Why Insider Outsiders Are the Key to Succession Planning (Boston, MA: Harvard Business Review Press, 2007).

PART II

THE WORK OF A NEW CEO

6 MASTERING THE STRATEGIC MANDATE

As the spring of 2016 progressed, Jean-Marc Germain was getting increasingly restless. Having recently completed his tenure as CEO of Algeco Scotsman, a business services company providing modular building solutions and portable storage, he had just joined the board of Constellium as executive director with the view of starting as the new CEO in the coming months. Constellium is a global leader in high-value aluminum products for the aerospace, automotive, and packaging sectors listed on the New York Stock Exchange and headquartered in France. It operates 28 manufacturing sites in North America, Europe, and Asia and has corporate offices in Baltimore and Zurich. Jean-Marc Germain, following his graduation from the elite French school Ecole Polytechnique in Paris, had held positions with Bain Capital and GE Capital before embarking on a career in the aluminum industry with increasingly senior positions at Pechiney, Alcan, and Novelis. After his stint as CEO at the Baltimore-based Algeco Scotsman, Germain returned to an industry he was well familiar with.

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As Germain was reflecting on how he should approach the new job, he thought back to the time when he had started his first CEO position at Algeco Scotsman. Despite having previously held senior positions in multinational companies, this first CEO role had been challenging in many respects. Becoming CEO of Algeco Scotsman had meant moving not only to a new company but also to a new industry, requiring substantial time to get acquainted with the business and its dynamics. Moving up to becoming CEO had also proved to be a surprisingly big career step, given that the scope of the role involved a number of tasks he had never encountered before. Germain wondered how his latest challenge could best be managed. His steep learning curve at Algeco Scotsman had taught him that the task needed to be approached with a fair bit of humility. At the same time, he was confident that his new task at Constellium would prove to be easier. For starters, since he had worked for the competition, he knew the industry and its customers well, and Constellium was familiar to him at least as a player in the market. At Constellium, he would also no longer need to struggle with learning the ropes of being a CEO. Germaine recognized, however, that he needed to be careful not to jump to conclusions. Several questions kept returning to his mind. Which recipes from the past would also work here? He realized that before acting, he would need to spend time getting to know the organization and its people. And while he had already met some of his future top management team members, he was not certain that he would be able to work with all of them. Who should he keep, and who should he replace? Finally, during the hiring process, the board had signaled that his mandate was to evolve strategy and drive increased growth and profitability. How would he need to change the organization to drive this mandate? How would he orchestrate the timing of all these changes? We have previously discussed the essential role that identifying the right mandate and matching it with different CEO profiles plays in choosing who to appoint. However, once the board has done all it can to carefully identify the mandate type and to select the right candidate, the focus shifts to the new CEO. As the example of Jean-Marc Germaine shows, new CEOs also have important considerations to make as they embark on a new CEO position. So what can or should new CEOs do to make sure that the board’s work in defining the mandate does not get lost in translation?

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The nature of the new CEO’s work To understand the work of a new CEO, it is helpful to recall that the CEO has the role with the broadest scope in the corporation. CEOs have oversight of all the businesses and functions the company has and need to orchestrate and integrate these aspects of the corporation. Only when the different functions and businesses operate in a well-integrated manner will the organization be successful and portray an appealing picture to the various stakeholders.1 For the CEO, this means they need to show some competence in most areas and be sure to stay on top of everything going on. In large, complex organizations, CEOs cannot do this alone, but rather need to rely on a network of leaders at multiple levels throughout the business. To drive the organization towards achieving the strategic mandate, the CEO must provide a vision and direction, decide and orchestrate actions and priorities, foster integration of activities, and provide leadership. For new CEOs, the picture is further complicated by the fact that they need to transition to the new role. For internally appointed CEOs, this means learning the ropes of being a CEO and becoming effective as a company-wide leader rather than a unit leader.2 For externally appointed CEOs, the challenge of getting to know the company and possibly even the industry is added.

In successfully transitioning to the CEO role, timing matters While new CEOs’ initial strategic mandate easily spans three to five years, they may already be set on the road to success or failure during the first weeks of their tenure.3 The stakes are particularly high for CEOs who come from outside the organization, given that they are not well known to the stakeholders, and there will be uncertainty around their capabilities. In this scenario, initial reactions can make or break the future of the leader’s tenure. At the same time, the length of the mandate also means that CEOs need to think about how to distribute their energy and activities over a long period of time and decide how best to engage a broader group of individuals to multiply their own efforts.

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Given the complexity of the tasks and their timing, we will now discuss how a playbook can help CEOs connect the board’s desire and the mandate they have developed with the reality of the organization, its people, and intrinsic and extrinsic circumstances. While each CEO is unique and will always have their own way of approaching the job, a high-level playbook will provide a helping hand to avoid the most common pitfalls, which our research has shown can become a trap for both new and seasoned leaders.

The new CEO playbook To guide new CEOs, we offer a three-stage playbook, depicted in Figure 6.1, that covers the different stages of the CEO role during the initial mandate, identifies the key tasks in each stage, and provides guidance for how to successfully execute them. In the first step, the CEO focuses on transitioning into the role and taking charge of the organization. This stage often begins with the appointment of the CEO: that is, before the first day on the job. Often overlapping with the first stage, the CEO then needs to focus on building a personal platform that is wide and deep enough to enable them to drive

• • • •

Define and communicate the vision Create an organization-wide movement Engage in strong leadership behavior Prioritize and pace change through a sequence of actions • Follow and communicate progress

3. Driving results

2. Building the personal platform

1. Taking charge

• • • •

• Build a strong core team that can deliver on the new vision • Deepen and broaden the network

Listen rather than speak Every word counts Principles and value-based communication Engage in controlled action

Figure 6.1  Three stages of the playbook for a new CEO

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the strategic agenda. Finally, the leader drives results drawing on that platform and employing a set of key foundation principles. Taking charge For the first stage, new CEOs are routinely told to hit the ground running and get things done in the all-important first 100 days.4 Instead, our research indicates that the new leader should tread carefully, especially during the initial period in charge, predominantly because in the initial phase of tenure, CEOs face one or more paradoxes.5 While the organization and its stakeholders look eagerly towards the new CEO for direction, the new leader is not yet in a position to give answers. In particular, outsider CEOs often have many factors stacked against them: they don’t know the organization or its culture and often come from a completely different industry. For instance, when Mark Schneider joined Nestlé in 2017, his industry experience had been in healthcare-related industries, while Nestlé’s core businesses were in the food industry. As a result, he faced a steep learning curve to become effective, accepted, and ultimately successful in the new organization. With such a learning curve, even the brightest executive is well advised to tread carefully and focus on understanding the organization rather than taking dramatic actions early on. To picture this early phase, one should imagine the CEO as not sitting on top of the organization but rather being placed in the middle, interacting with different parts of the business and absorbing knowledge and information. Some organizations and leaders prefer to draw organization charts that portray this image, and while the CEO will at some point need to take charge, the initial stages are the ones in which the CEO’s humility, combined with the capability to win minds and hearts, requires a highly networked approach. Successful leaders, particularly when they come from outside and do not face immediate financial distress, often spend substantive time and energy learning about the business and the organization. To address the organization’s need for information about the new leader’s vision, new CEOs often engage in extensive communication to establish their personal brand and sell their initial mandate. This communication is centered around values and principles rather than specific actions or decisions.

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Only after the initial learning period do successful leaders engage in carefully defined early actions that focus on creating quick wins through simplification and reduction of corporate complexity. Building the personal platform To have an impact, the new CEO cannot rely only on formal authority. Larger organizations are often inert, with multiple layers of management that can water down any change attempt that runs counter to their interests. To be able to drive the strategic mandate, new CEOs need to build a personal platform that will help them multiply their change efforts. Vas Narasimhan of the Swiss pharmaceutical giant Novartis is a great example of how to do this. One of his main goals on becoming CEO at Novartis in 2018 was to change the culture of Novartis towards a more entrepreneurial and less top-down approach. He created the theme of “unbossing the organization” and spent a tremendous amount of time engaging people at all levels. As he told us: The unbossing movement was a big success in the way we’ve been able to activate the base of associates. Both through pounding the pavement as an executive team and then using social tools.  .  .  . Culture change requires a tremendous investment of personal energy and emotion from the CEO. There’s no other way to do it. CEOs need to start from the insight that leadership is a team sport. Team sports may serve as an allegory.6 Sports teams rarely benefit from the inclusion of a prima donna, and no transformation can be successful if the CEO tries to do it alone and does not surround themself with a solid and trustworthy team. Jürgen Klopp turned around the Liverpool soccer team to lead them to UEFA Champions League victory and the first English Premier League championship in 30 years. The key to his success was building an all-powerful team not dominated by a single individual. A team of stars. To replicate this approach, CEOs need to begin with establishing the top team7 and building and leveraging deep networks with the board, throughout the organization, and with stakeholders outside the organization, making sure that all relevant voices are heeded, and influence is not filtered by a small group in the organization.8

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Driving results While no two CEO tenures are exactly the same, successful CEOs employ a number of simple principles to drive results. To succeed in driving the strategic mandate, CEOs typically start from broadly communicating a compelling vision that has the power to win hearts and minds while also drawing on their personal platform to create an organization-wide movement in support of the change. For instance, Olaf Swantee at UK telecoms operator EE galvanized change under the vision of bringing the UK to the forefront of telecommunications. As he explained: When I joined EE, there were smartphones but no internet access in a country where the infrastructure was terrible, and a country that used to be no. 1 in mobile and invented mobile, had completely lost its way. I made a compelling case of bringing in new technology to uplift it and establish the UK again in the top five worldwide. Implementation is best sequenced with a limited number of priorities at any point in time to maintain momentum without overstretching the organizational change capacity. Successful CEOs further emphasize transparent action and regular feedback on progress. For instance, during his multiyear transformation of Dutch chemicals company DSM, CEO Feike Sijbesma relentlessly communicated progress in internal and external presentations, keeping stakeholders inside and outside the organization focused on the change agenda over several years. In the next three chapters, we provide more detailed insights into each of these stages and key principles for success in each.

Supporting the new CEO The breadth of the CEO task is not the only challenge new CEOs face. The CEO role has been described as the loneliest role in the corporate context. The reason for this assessment is that by its very nature, the role of a CEO has the potential to isolate the leader from others in the organization. CEOs don’t have direct peers in the company with whom they can share their thinking. They can also become easily isolated from the board, their equivalent of a direct superior, since typically board members

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are not in day-to-day contact with the CEO. In addition, CEOs are often the final decision-makers, with many of their decisions potentially impacting even the top management team, ruling out the opportunity for discussion. Finally, CEOs may be even more reluctant to discuss decisions with top management team members for fear they may be vying for the CEO position and therefore may act politically. Given this potential for isolation, the board has an important role in supporting the CEO during all stages of the initial mandate.9 During the “taking charge” stage, the board should be actively supporting the onboarding of the CEO. Onboarding support relates not only to additional information on where the board sees the strengths and weaknesses of the organization and the strategic challenges ahead but also to providing detailed information about different stakeholders inside and outside the company and their potential agendas. The depth of the information provided will depend on how closely involved different board members are with the company. The board chair is typically closest to day-to-day operations and will play a central role. Board support should not end with onboarding during the “taking charge” stage. During the “building the personal platform” stage, board members can play an important role in introducing the CEO to stakeholders and thereby helping build a strong platform. This role is particularly important for outside CEOs, who may not be fully familiar with all the stakeholders. It may sound obvious, but boards need to make an effort and invest time at the beginning of a new CEO’s tenure to build a trusting relationship with the CEO and facilitate the CEO’s relationships with others. When CEOs begin to drive the strategic agenda derived from their mandate, boards play an important role in acting as a sparring partner. This role is particularly important for first-time CEOs who do not have experience with all aspects of the CEO role. In becoming a sparring partner, again the board chair or lead independent director plays a key role. In an ideal case, the chair becomes an inseparable partner to the CEO. If conflicts, disagreements, and ultimately distrust are allowed to arise between the chair and the CEO, it can be the beginning of a vicious circle that escalates to a broken relationship with the board at large and ultimately can lead to the dismissal of the CEO. Finally, the role of the board may reach beyond the initial mandate. In an open and transparent board-CEO relationship, board members should

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provide the CEO with career advice and mentoring beyond their current position.

Notes 1 For insightful discussions of the work of the CEO, see, for instance, A. G. Lafley, “What Only the CEO Can Do,” Harvard Business Review 87, no. 5 (2009); Henry Mintzberg, “The Role of the CEO,” DesignIntelligence, August  15, 1998, www.di.net/articles/the-role-of-the-ceo/; Michael E. Porter and Nitin Nohria, “How CEOs Manage Time,” Harvard Business Review 96, no. 4 (2018); William N. Thorndike, Jr., The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success (Boston, MA: Harvard Business Review Press, 2012). 2 For the challenges of internally appointed CEOs, see Andrew P. Chastain and Michael D. Watkins, “How Insider CEOs Succeed,” Harvard Business Review 98, no. 2 (2020). 3 Thomas Keil and Marianna Zangrillo, How First Impressions Make or Break a New CEO (Zurich: University of Zurich, June 1, 2020). 4 Michael D. Watkins, The First 90 Days, updated and expanded ed. (Boston, MA: Harvard Business Review Press, 2013). 5 Keil and Zangrillo, How First Impressions Make or Break a New CEO. 6 Thomas Keil and Marianna Zangrillo, “Transformation Is a Team Sport,” in Transforming Beyond the Crisis: What Organizations Need to Do Now to Seize Tomorrow, ed. Thinkers 50/Brightline (Newtown Square, PA: The Project Management Institute, 2020). 7 Thomas Keil and Marianna Zangrillo, The New CEO Assassin or Agent of Change? (Zurich: University of Zurich, 2020). 8 Shenghui Ma and David Seidl, “New CEOs and Their Collaborators: Divergence and Convergence Between the Strategic Leadership Constellation and the Top Management Team,” Strategic Management Journal 39, no. 3 (2018), https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2721. 9 Jeffrey Pfeffer and Gerald R. Salancik, The External Control of Organizations: A Resource Dependence Perspective (Stanford, CA: Stanford University Press, 1978); Jay W. Lorsch and Elizabeth MacIver, Pawns or Potentates: The Reality of America’s Corporate Boards Harvard Business School Press (Boston, MA: Harvard Business Review Press, 1989); James D. Westphal, “Collaboration in the Boardroom: Behavioral and Performance Consequences of CEO-Board Social Ties,” Academy of Management Journal 42, no. 1 (February 1999).

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7 TAKING CHARGE

Founded in 2015 by the merger of French and Swiss cement companies,1 LafargeHolcim, the global leader in the cement industry, had a rough start. The merger had been difficult from the beginning when intense scrutiny by international competition authorities, together with repeated renegotiations of the deal, delayed the closure by almost 15 months. From the beginning, the merged company experienced strong rivalries between the leaders of the Swiss and the French sides and was often paralyzed by political infighting. As a result, LafargeHolcim fell behind its competitors in several key markets, raising questions about the validity of the merger, its leadership team, and ultimately the CEO. When Eric Olsen, the first CEO of the combined LafargeHolcim, was forced to resign in connection with a political scandal in the spring of 2017, the board, under chairman Beat Hess, realized that the only way forward was to find a new CEO who would be able to break the stalemate and transform the struggling giant. After a short search, the board approached Jan Jenisch, then CEO of Swiss construction chemicals company Sika. While Sika was considerably

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smaller than LafargeHolcim, during his five years as CEO at Sika, Jenisch had increased revenues and profitability in a difficult market environment and amidst a takeover attempt by French construction materials company Saint Gobain. Jenisch accepted the task to transform LafargeHolcim so that it could finally realize the intended potential of the merger. Jenisch took the months between leaving Sika and starting at LafargeHolcim to familiarize himself with the company he was about to lead by visiting some of the locations and meeting his future direct reports and other stakeholders. As he commented in a conversation during that time: I feel under pressure, that already after 100 days I need to comment on the strategy and the goals and the organization. Then there are also personnel decisions pending that cannot wait. I simply do not have much time to wait and see. Given the extensive preparation work before day one, when he started his tenure in September  2017, he was able to immediately set out to transform the company. One of his first actions was to present a set of leadership principles to the board and the corporate management. As he explained: “I  presented ten leadership principles. Things like simplification and performance management orientation. I  also discussed how to work together, how we organize the meetings etc. And then we got going.” To further deepen his understanding of the corporation during the first three months on the job, Jenisch engaged in a tour de force, visiting the 20 most important countries that LafargeHolcim was operating in, leading him across all continents. In parallel, he started a strategy process that led to a radical simplification of the management structure at the end of the year and shifted power from the corporate headquarters to the local organizations.2 Jan Jenisch is an example of the intensity of the transition period of a new CEO. When CEOs start, first impressions matter. In particular, when a new appointment is from outside the organization, uncertainty is high because the CEO is not well known to the stakeholders, and initial reactions can make or break their future. Furthermore, some executives may be emotionally overcome by the uncertainty of potential decisions and fear losing their status quo. When that happens, some highly

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influential stakeholder may become negatively predisposed and reluctant to support the newly appointed CEO. As a result, new appointments are often accompanied by strong negative sentiment, lack of support, and in some cases even active resistance. In a large-scale study of 1,500 CEOs, we found that such initial negative feedback is likely to have a negative impact on the company’s financial performance for several years after the external CEO’s appointment.3 Besides the questioning, or even negative initial reception, CEOs have other odds stacked against them. When they come from outside, they do not know the organization, and that becomes even more challenging when they come from a different industry. As a consequence, they will likely face a steep learning curve before they can become effective, embraced, and ultimately successful in their new organizations.4 At the same time, most people in the organization are expecting the new CEO to give answers and provide directions more or less from day one. As Jan Jenisch’s example suggests, they face intense pressure for action. New CEOs therefore face an almost paradoxical situation: when they start, everyone is watching for any word or sign of intentions and actions, but they are not in a position to provide guidance.

The folly of the f irst 100 days Having discussed what is necessary to identify a suitable CEO candidate, the next natural question is what can a new CEO do to increase the odds of being successful when taking charge of the organization? CEOs are routinely told in practitioner articles to hit the ground running and get things done in the all-important first 100 days.5 Although the initial transition period certainly matters, our research suggests that the obsession with the first 100 days often leads to misguided actions that, taken without a deep understanding of the organization, its context, and the situation, are likely to be suboptimal and eventually backfire. In the words of a CEO we interviewed, “Do you holistically understand the entire business within the first three months? No. Any executive who were to maintain that would have a very high opinion of themselves, to say it politely.” Given this premise, the first 100 days should be about learning and building the ground for what is to come later. Our research suggests

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that CEOs should use the initial period to listen and learn, build trust, and prepare the ground for later actions. This focus will allow them to develop a deep understanding of the organization that will inform wellplanned actions. That being said, incoming CEOs need to be mindful of the context and situation they find themselves in when designing the first 100 days plan. As we discussed in Part I, CEO mandates differ in the time horizons and the urgency of actions. For instance, in a turnaround situation with impending bankruptcy, a new CEO may not have the luxury of waiting and may be forced to take drastic action within the first weeks of the appointment. On the other hand, in the absence of financial distress, taking actions that may limit the strategic options for years to come may seem misguided when the mandate is a transformation of a complex organization. In fact, in this situation, CEOs may be well advised to extend the initial learning period to half a year or even more before taking actions that may commit the organization to a particular strategic path or kick off a large-scale transformation. As one CEO explained: I needed the time to fully understand what I’m talking about. Although I’ve been in similar businesses and everything seems similar on the surface, at the end of the day, this is a different business, different customers, different market dynamics and it’s not wise to start making decisions about things that you don’t understand. For instance, Mark Schneider at Nestlé from the opening example of the book waited for close to half a year before he started portfolio changes, given the size and complexity of the organization. Such extended learning periods, however, should not be mistaken for inaction on the part of the CEO as, during this period, CEOs often make a multitude of small decisions while recognizing that good decisions need sufficient information and understanding. At the same time, when CEOs like Jan Jenisch have the opportunity to engage in extensive preparation before day one, a faster pace of change may be possible. A second dimension that determines the pace with which a new CEO can start action relates to whether the CEO has been hired from inside or outside the organization, as this tends to drive the expectations of

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stakeholders. For an internal CEO, most stakeholders will expect actions to be taken much earlier in their tenure, given their familiarity with the organization. Things may look different in the case of an external candidate since the incoming CEO may require an initial grace period to get to know the organization and build the necessary support to drive changes. Eckhard Cordes, former CEO of the Metro Group and currently partner at private equity investment firm Cevian explained: External CEOs have a longer start-up period. The larger the company, the more global, and the more broadly based, the more difficult it is for a CEO to be effective. You need to understand the organization. And if you want to have an impact and want to change things, you need the support of the organization. You need to know who will be your allies with whom you can implement what you plan and will also tell you when to stop. Coming from the outside this is much more difficult and takes longer time to build. Despite the intense pressure that any external CEO experiences, as the opening example of Jan Jenisch and prior research suggest,6 CEOs and the stakeholders evaluating them need to be mindful of the time needed in particular for external CEOs to become effective in their new organization and plan and communicate accordingly.

Preparation before day one While the tenure of the new CEO officially begins on their first day in the new role, it is important to highlight that many candidates engage in intense preparation beforehand. As the example of Jan Jenisch at LafargeHolcim highlights, this preparation can substantially shorten the time needed before the CEO can take action. This preparation takes somewhat different routes, depending on whether the appointment is made from inside or outside the corporation. For insiders, the preparation will involve planning for the initial tenure. This may involve conversations with key employees throughout the organization as well as with outsiders and, in some cases, may last a couple of years in the case of carefully planned succession. Upon being appointed to CEO, insiders

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WHAT SHOULD I PAY ATTENTION TO WHEN TAKING CHARGE? •

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Remember that every word counts. People have great eagerness to get to know the new leader and will watch them closely. So initial communications should be clearly thought and planned out and controlled and cannot be delegated or underestimated. Listen rather than speaking. As a newcomer, even a very experienced executive is well advised to withstand the temptation of giving advice too quickly, listening instead to understand the new context. Engage in principles- and values-based communication. Instead of jumping to conclusions regarding an organization the new leader does not yet know, it is better for them to communicate what they stand for as a leader. What are their key values and principles? However, despite the need to listen and learn, it is essential for new leaders to start selling the mandate. Build the network. To be effective, CEOs need to build a strong roster of internal allies within and beyond the top management team and identify the toxic individuals within the senior groups who may set them up for failure. Refrain from misguided actionism. Instead of aggressively engaging in early actions, CEOs should weigh initial actions carefully and focus instead on learning about the organization. Early actions are likely to be based on an insufficient understanding.

often take on additional responsibilities before officially commencing the role, to prepare them for the broader responsibility of the CEO position.7 For instance, Vas Narasimhan described his preparation period after being appointed CEO of Novartis: I started by going on a listening tour throughout the organization to get a sense of what the people were feeling. I also tried to talk to CEOs outside of the company. During the CEO selection process, I  had written down my own narrative of where I  think I  would want the company’s direction to go. I really took the time between being appointed and formally taking the role to try to validate that. I  also was able to do an offsite with my new leadership team to

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really solidify that narrative and it is still the narrative I use with the company today. Outsiders are sometimes in a position to engage stakeholders within and outside the company before their official start day, as they need to develop deep knowledge about the organization as fast as possible at a time when stakeholders may be eager to engage due to curiosity and a desire to get closer to the incoming candidate. The difference is that the conversations that outsiders can engage in need to be more tentative in nature, given the absence of a formal role in the company at the time. Jonathan Lewis described his preparation for taking the CEO role at Amec Foster Wheeler: Purely as a function of your candidacy for the CEO role you are going to do considerable due diligence on the business. But, even more, as soon as a decision has been made to appoint you. I think, you only have one day one when you join the company formally, and that day one has to be extraordinarily effective in terms of whom you communicate with, what you communicate, and how you manage your first week. You only get one opportunity to create that first impression. To prepare for that I engaged with stakeholders in the company weeks before the official start date. I  tried to speak to all stakeholders, including the institutional shareholders, the board, customers, and key members of the leadership to better understand the business and the task ahead. To engage in a structured preparation and allow an external CEO to be effective more rapidly, some organizations hire CEO candidates temporarily in executive positions with periods ranging from a couple of months up to a year. For instance, Erwin Mayr, CEO of copper products producer Wieland Werke, joined the company three months before starting his role as CEO. Similarly, Riccardo Mollo, former CEO of Permasteelisa, an Italian global leader in the field of architectural envelopes and interior systems, was hired into an executive position a full year before taking over the CEO role. This practice has the advantage that the incoming CEO can get to know the organization before needing to make decisions.8 However, this practice can also easily lead to a stasis

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in decision-making since the outgoing CEO may be reluctant to make decisions, and the organization may be reluctant to implement decisions knowing about the upcoming change in leadership. Finally, it assumes that the outgoing CEO is leaving on friendly terms and is willing to support the incoming leader.

Day one: managing f irst impressions As we have already highlighted, first impressions matter. Employees throughout the organization, shareholders, customers, and suppliers are eager to form an opinion about the incoming CEO. In particular, firsttime CEOs are often surprised by the level of scrutiny they receive. For instance, Vas Narasimhan, CEO of Novartis, explained: I was under-prepared for how closely all your words are scrutinized in this role. You are under a microscope in many ways. At first, it’s quite jarring. Suddenly you’re in the media spotlight, every morning you have one conflict or another coming up all around the world that you are supposed to address. The first six months was definitely a significant growth period for me from that perspective. Given the level of attention, opinions form fast and are often based on minimal communication. One of the central tasks of an incoming CEO is therefore to prepare the content of the communications for the early days. It is common practice for the corporate communications department to prepare this messaging, based on a high-level interview with the CEO. However, we suggest that a message drafted personally by the newcomer, perhaps with input from the communications team, will better reflect the CEO’s personal style and will increase the likelihood of their being understood and accepted by the organization. First day communications generally include introductory emails to employees, statements to shareholders and the press, and perhaps even some initial meetings. While these communications should be light on content regarding future company actions, given that the new CEO may not know the company in detail yet, they are central in setting the tone for the tenure. It is through these initial communications, together with consistent behavior, that an

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incoming CEO can signal approachability, appreciation of open communication, and possibly humility. Jean-Marc Germain, CEO of French Aluminum products manufacturer Constellium. summarized the matter well: You need to approach your first communications with a bit of humility. I  think it’s very difficult to be a good leader and not be humble. Tell people what your values are. They want to know about what attracted you to the job. They want to see that you’re going to be a leader and have some optimism about the future and then you are going to treat them fairly. And exactly the same for shareholders, they want to see that you’re competent; that it seems like you know what you’re talking about; that you have views about why this company is exciting and you’re excited to be here; they don’t expect answers but that you give them a structure. “Listen, I’ll be meeting with customers, I’ll be meeting with employees, I’ll be visiting the locations, I’ll be working with the management team to develop strategy, and then I’ll come back in three months’ time with a plan and targets, and we’ll talk together about what it takes to achieve it.” The CEO must, however, walk the talk, and while initial communications matter, equally important is that the incoming CEO behaves in a manner that is consistent with the initial (and also later) communications. Employees read between the lines and carefully compare the statements made with the behavior of the leader. For instance, in one of the organizations we studied, the CEO communicated his eagerness to hear employee opinions and stated that employees should approach him at any point in time. At the same time, that very same CEO always kept his door firmly closed and did not generate any mechanisms that would allow employees to approach him. As a result, word went around fast that the CEO was aloof and not interested in others’ opinions. Given the intense scrutiny of initial communications and actions, CEOs need to be prepared for some initial negative reactions among employees or stakeholders such as the press. To manage this initial response, it is important to strike a balance between actively and transparently engaging with all stakeholders and avoiding getting into a debate.

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LET’S MASTER THE ART OF “TAKING CHARGE” The folly of the first 100 days. Advice to CEOs is often misguided in putting too much emphasis on actions or taking positions (or even worse, sides) during the first 100 days. Instead, CEOs should use this period carefully to take charge by learning about the organization, managing first impressions, and engaging only in carefully selected actions. Preparation before day one. Preparation for the transition to the CEO position begins before the first day on the job and should follow a structured process that allows the CEO to be effective as early as possible. Day one: managing first impressions. The initial period should focus on managing first impressions that have the potential to either set the CEO on a positive path or lead to negative sentiment that is difficult to overcome. Initially, organizations scrutinize every word and action of the CEO. Therefore, CEOs should engage in controlled communication about themselves and their values, making sure they are being authentic and backing up their words with consistent behavior. Listen rather than speaking: learning about the organization. During the first months, CEOs should focus on learning about the organization rather than giving premature and uninformed guidance. To do so, CEOs should set their agenda so that they will meet enough people at all organization levels, functions, and geographies. Early actions. While the focus is on learning during the initial months, CEOs can engage in symbolic actions that signal the mandate they will pursue. For example, they may decide to engage in organizational simplification in areas where structures and processes were designed out of political compromise rather than to deliver the strategy.

Greg Poux-Guillaume, CEO of Swiss-based fluid engineering company Sulzer, explained: You have to have convictions, openly engage with stakeholders and accept that there will be pushback. Nobody cares to hear a CEO complain that he or she has not been treated fairly. That is an admission of weakness and only makes matters worse.

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Listen rather than speaking: learning about the organization Given that the CEO role is action oriented and that the organization often eagerly awaits their direction, one of the biggest risks of the transition period is that they will move too rapidly from listening and learning towards speaking and providing uninformed answers. This is particularly pertinent in the case of an outside CEO. On the other hand, CEOs appointed from the inside may underestimate the need to learn new skills and may fall into the trap of maintaining behaviors and favoring relationships that characterized their previous roles. A  business unit executive promoted to CEO, for example, may favor relationships in their original business group or even be prone to allocating more funds to that business unit, generally because he or she understands that business better. It is not surprising that many first-time CEOs told us that the move from a division head to the CEO role was their biggest learning challenge. First-time CEOs are well advised to view the initial months as a learning period, and boards should consider providing mentoring by a chair or board member with personal CEO experience – even better if they have experience in a CEO role with the same appointment characteristics. During the transition, incoming CEOs should focus on asking questions and listening. While the CEO may have formed an initial picture prior to day one, based on conversations with the board and the initial preparatory work, the first two to three months should be spent engaging in conversations with employees across the organization, in order to gain a deeper understanding of how the organization functions and where the problems are. The goal of focusing on learning about the organization during the first months is threefold. • All CEOs, especially those who come from outside, need to build a thorough understanding of the different businesses of the company and how the organization functions. • CEOs who come from outside need to develop a more complete understanding of the situation the company is in. The picture painted by the board during the recruitment process frequently does not fully

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reflect the reality, and before being able to take action, full understanding of the strategic context is needed. An initial listening period is also a useful way for an internally appointed CEO to develop a deeper understanding of the business areas they have not been involved with in their prior position, so they can develop a more balanced plan for the development of the company.

To gain a deep understanding of the organization, it is important to engage with all stakeholders including customers, partners and suppliers, employees, board members, shareholders, and bankers. Among employees, it is especially important to engage in conversations with those further down the hierarchy, rather than relying on the information from the top team that is being filtered through the hierarchy. In conversations with stakeholders, a combination of open questions and checklists of topics derived from the initial preparation is useful. Jonathan Lewis, CEO of UK-based Capita and former CEO of Amec Foster Wheeler, explained how open questions can be used to put people at ease and get them to open up: You ask broad questions and then just listen: “How do you feel the business is performing? What do you like or not like about working at the company? What can we be better at? If you had my role what would you change?” Just get people to talk. You very quickly get a sense of how the business is really operating and what is not working. Similarly, Jan Jenisch, CEO of LafargeHolcim explained how structured questions may be used: During the first three months I’m visiting the country organizations. When I  go to the countries I  always have 20 topics where I want their opinion. I let them suggest a formal agenda but I always have my 20 topics in the back of my head and I ask about them. While interviewing or having informal conversations with a wider group of stakeholders, an incoming CEO can triangulate the data, build a valuable picture of the organization, and ultimately draw up a powerful plan that takes into consideration the views of various stakeholders. It is

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also very important to address separately those stakeholders whose ideas and wishes have not been considered and to explain why so that the conversations do not backfire. Irrespective of the type of questions used, these conversations should be centered around the facts and processes rather than around opinions and political agendas. This is often easier in direct conversations with customers and suppliers or when conversations take place with employees further down the hierarchy.

Early actions While the transition period for the new CEO should be focused on learning and building the ground for what is to come later, some early actions can and should occur. Specifically, during the first months of their tenure, the incoming CEO should focus on situationally driven actions, symbolic actions, and simplification. Situationally driven actions Some actions may be driven by the situation that new CEOs find themselves in. Particularly in turnaround mandates, CEOs often have to take actions early on that are driven by financial distress and potential threats to survival. As Jonathan Lewis, CEO of Capita, explained: Early on you need to understand the operational imperatives. Is sales working? Do we have the breathing space to keep operating for the coming months or is the state of the business such that we need to shore up the business quickly? If the game is survival, you don’t have the luxury to engage in long analysis and planning. You need to stabilize the business first. Not taking such actions simply is not an option even given how limited the information is that the new CEO has about the organization. Symbolic actions If financial distress and threats to survival are not immediate issues, the initial period of tenure should be focused on signaling to the organization

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what it can expect from the new CEO and what mandate he or she will be pursuing. It is not enough for the CEO just to talk about values; communication needs to be reaffirmed with – sometimes also symbolic – action. Such actions first and foremost need to be authentic and in line with the communication. For instance, Dr. Georg Müller, CEO of MVV, a publicly held German energy company, explained how from day one he had communicated his zero tolerance for compliance violations. When, shortly after his arrival, a senior management member engaged in such a violation, he dismissed the leader immediately, thereby signaling the importance of this issue under his tenure. Similarly, when a CEO says he or she supports gender (or more general) diversity, which has become an increasingly hot topic in recent years, actions must follow the words. If the leadership team is an all-male or same-nationality panel and the CEO fails to hire a diverse team member (female, other nationality or skin color) when looking to hire new blood, trust is simply lost. While CEOs need to proceed with great caution in making decisions in an organization that they do not yet know well, carefully chosen actions can help communicate and even sell the idea of the mandate. For instance, when Jonathan Lewis was hired to turn around Amec Foster Wheeler, one of his first actions was to signal the importance of cost consciousness going forward. He explained: The day I  started here there was a black S-Class Mercedes Benz with a chauffeur outside the building which was to be my vehicle and my chauffeur. I sent the car back to the dealership and sadly let the chauffeur go. We had a chef in the corporate office; in the first week I shut that service down. We also had a travel policy which had the CEO travelling in First Class, everyone else either Business Class or Economy. On day 1, I instigated a new travel policy where everyone flew on the same basis irrespective of who they were in the company, including the Board. These are the kind of symbolic acts that I think set your tenure on the right path. Such actions show that the CEO is living his or her words and can serve to instill credibility in the leadership. In some cases, it can also lead to a natural change in some of the key positions in the organization – where a member of the leadership team may not share these values and initiates

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their own departure, for example. By taking these symbolic actions, CEOs not only establish their credibility but also communicate a sense of urgency for the mandate and the values needed to bring the mandate to life. In corporate life, actions speak louder than words. When communication and actions are misaligned, symbolic acts can backfire, destroying trust throughout the organization and setting the organization-CEO relationship on a path that is difficult to break afterwards. Simplif ication Other important early actions relate to organizational simplification. In an ideal world, organizational structures and processes would be designed to deliver the organization’s vision and strategic promises with effectiveness and efficiency. In the real world, we live in structures that are typically the outcome of compromises that try to balance an economic rationale with the political realities and power structure of the business. As a result, over time, organizations grow substantial amounts of unneeded complexity. Teams tend to grow bigger than needed, and like an indulging human body, the corporate fat keeps feeding itself. The corporate complexity and fat not only reduce the agility of the corporation in responding to market changes; they also tend to bind management attention and resources and make the best employees restless to the point that many leave. One of the great advantages of externally hired new CEOs is that they are unencumbered by the political battles of the past and the compromises that have led to the complexity. As a result, simplifying organizational structures and pruning in a systematic and sustainable manner often provide an opportunity for quick wins and send a strong signal to the organization and to the market that the new CEO means business. Simplifying organizations means reducing complexity to the minimum necessary, increasing accountability, and enabling leaders to run their functions or businesses. After all, people are the brain and the heart of each organization, and the nature of the human being is to appreciate what is simple, easily understandable, and clearly communicated. Take, for instance, Jean-Marc Germain, CEO of Constellium. He explained: I really simplified the organization quite a bit around how management processes work. There were plenty of activities going on that

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FIVE STEPS FOR SIMPLIFICATION Successful simplification typically involves the following five steps: • •

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Initial study phase. Learn about the organization and form an initial strategic vision and strategic goals for the organization. Mapping the organization. Map the logic of current organizational structures and processes against the vision and strategic goals. Different visions require different organizational setups, and therefore structure follows the vision, not the other way around. Spot misfits. Identify areas of misfit (business areas, organizational structures, roles, and people, among other things) and act bravely to cut these when it is not possible to adequately adapt them to the new vision. Create alternatives. Crystallize the core business processes and infrastructure aligned with the new vision on which the reenergized organization can build. Take the lead to cut the fat. Always start with leading by example. When cuts are needed, leaders need to step out of the comfort zone themselves.

were not really supporting the goals that we were looking for. So I established clarity of objectives and refocused management processes around those objectives. From that basis decision making and performance measurement was much clearer. When the CEO is still in the phase of learning about the business, any simplification and pruning that take place tend to touch areas that will not constrain future strategic options. That could be initial process improvements, for example, or long-needed organizational changes, such as consolidating two competitive business groups under one leader. It is important to note, however, that a second wave of simplification may be part of more fundamental changes that occur only later in the CEO’s mandate. These more fundamental simplifications are often part of transformation mandates designed to prepare the ground for redirection and future growth. While situationally driven actions, symbolic acts, and simplification play a positive role in the initial tenure of a CEO and create direction

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and transparency of purpose, all too often incoming CEOs engage in approaches designed to take pressure off themselves or to distract media attention. These approaches, however, are generally not value enhancing. Andreas Joehle, former CEO of Paul Hartmann AG, explained: There is a very popular methodology among some new CEOs. When they come to the company for the first time, they start a fancy re-organization, after two months, so that the figures are no longer comparable. Then they write off whatever can be written off so that the first year results go down as much as possible. After all, the first year is often still attributed to the predecessor. From the outside it looks like they take decisive action that seems all rational because thanks to their write-offs the numbers look bleak. And then because they brought down the results so nicely, their next year will be automatically good, almost no matter what they do. Given the potential for this kind of negative behavior, boards need to be vigilant and provide enough oversight to spot and control decisions that are made to ease the CEO’s life rather than to create value for the organization, particularly in the early stages of tenure. Again, we cannot emphasize enough the importance of a capable, vigilant, and present board throughout the life cycle of any CEO tenure. Ghost boards will negatively affect the corporation under any circumstance, and even more when a new CEO takes charge.

Notes 1 www.lafargeholcim.com/holcim-and-lafarge-complete-merger-and-createlafargeholcim-a-new-leader-building-materials-industry. 2 www.lafargeholcim.com/lafargeholcim-changes-group-management. 3 Thomas Keil, Dovev Lavie, and Stevo Pavicevic, Why Do Outside CEOs Underperform? Explaining Performance Heterogeneity Following CEO Succession (Zurich: University of Zurich, 2020). 4 Yan Zhang and Nandini Rajagopalan, “Once an Outsider, Always an Outsider? CEO Origin, Strategic Change, and Firm Performance,” Strategic Management Journal 31, no. 3 (March 2010).

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5 Michael D. Watkins, The First 90 Days, updated and expanded ed. (Boston, MA: Harvard Business Review Press, 2013). 6 Ayse Karaevli and Edward J. Zajac, “When Is an Outsider CEO a Good Choice?,” MIT Sloan Management Review 54, no. 4 (2012). 7 Joseph C. Santora, “Passing the Baton: Does CEO Relay Succession Work Best?,” Academy of Management Perspectives 18, no. 4 (2004). 8 Ibid.

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8 BUILDING A PERSONAL PLATFORM

When a new CEO is appointed, the spotlight is on the individual, and expectations often run unrealistically high. We still have an image of the CEO as the lone hero who should have the capabilities and the charisma to single-handedly turn everything they touch into gold.1 Our minds run to Steve Jobs turning around Apple, Howard Schultz revitalizing Starbucks, Jamie Dimon transforming JPMorgan, or Lou Gerstner rescuing IBM. Our research paints a very different picture. No CEO can change an organization without the help of many others multiplying their efforts.2 Without information from throughout the organization, CEOs quickly become isolated from what is happening. No matter how brilliant, CEOs need the insights and ideas of many to develop a winning vision and strategy. To implement anything in a large organization requires the effort and dedication of many. Put simply, without a personal platform and a strong team, a new CEO is unlikely to succeed. A comparison with team sports is illustrative. No matter what team sport they enjoy, most sports fans tend to have a coach they look up to.

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And yet, sports teams rarely benefit from the inclusion of a prima donna at the top, and success rarely follows when the team manager tries to do it alone and is not surrounded by a solid and trustworthy team. Jürgen Klopp’s success at Liverpool FC may serve as an example. The Reds have a proud history of being the team with the second most UK National Championship titles. Yet in 2015, when Klopp took over the team manager role, Liverpool had not won the Premier League title for 25  years, ranked tenth in the Premier League, and was considered a team in crisis. In the following five years, Klopp has rebuilt the team and led it to the 2019 UEFA Champions League victory and, in 2020, the first Premier League Championship in 30 years. While explanations of Klopp’s success formula abound,3 and we do not want to add another, one theme that runs throughout the existing accounts of his success is his ability to build a team on the field and around himself rather than relying on a few individuals only. Klopp has carefully developed a first-rate soccer team that balances top-rated international stars, such as Allisson Becker, Mohamed Salah, and Virgil van Dijk, with young talents, such as Curtis Jones, Trent Alexander-Arnold, and Sadio Mane. What everyone agrees is that Klopp’s approach makes all players stronger and encourages them to put their ego aside and instead play for the team. Beyond the players on the field, he has also carefully developed a topnotch “back office” team, recruiting assistant managers and support staff from across Europe who focus on all elements of the game from nutrition, fitness, and player psychology to player scouting, tactical analysis, and competitor intelligence.4 Similar successes can be found in other team sports. For instance, Andy Reid brought the Kansas City Chiefs back into the National Football League, culminating in the 2020 Super Bowl win, by building a true team. In a conversation around the topic, Luka Mucic, CFO of SAP, a multinational software corporation, commented, “Without star quarterback Patrick Mahomes the KC Chiefs would be toast.” This emphasizes the point that the leader makes a difference, but so does the team, and individual stars like quarterback Mahomes can multiply the team potential, as long as they remain team players and stay loyal to the leader. Whether they are appointed from inside or outside, when joining a company as CEO, leaders need to acknowledge that despite their formal

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position, they lack the organizational mechanisms to transform an organization alone. Despite the CEO’s authority, success needs the work and dedication of many others who can complement each other’s capabilities and learn from each other. Even the best-thought-out plans can crash into a corporate wall if middle and frontline leaders throughout the organization do not buy in and implement them. To be able to drive their strategic mandate, new CEOs, therefore, need to build a personal platform that allows them to reach into the organization and multiply their effort. This involves both creating and empowering a strong core team and developing deep networks throughout the organization.

Creating a strong core team To drive strategic mandates, incoming CEOs need to build a core team with the skills necessary for the mandate that the CEO can trust. The CEO then needs to empower this team to drive the organization in the envisioned direction. A new CEO always faces the situation that when joining the business, a top management team already exists, and it may need anything from a small degree of refreshing to a complete overhaul, depending on the situation of the company and the mandate of the CEO. Particularly in transformation or turnaround situations, large-scale management overhaul tends to be part of the mandate and is needed to kick-start change.5 When Jan Jenisch was appointed CEO of LafargeHolcim, he found a management team that was characterized by strong rivalries between the French and Swiss management camps and political disagreements. Instead of decision-making, the management engaged in round after round of analysis and debate. After analyzing the management structure, Jenisch quickly came to the conclusion that a radical departure from the past was needed, and he did not hesitate to act swiftly. During his first year of tenure, he replaced seven out of nine members of the top management team with a mix of internal and external hires. In renewing the management team, the CEO needs to ask four questions: How much management team change is needed? Who should go? How fast does the change need to happen? Who should we hire instead?

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HOW CAN THE CEO BUILD AND EMPOWER A STRONG CORE TEAM? To create and empower a team that can transform an organization beyond cosmetics, our research suggests new CEOs must follow some basic principles: •

•

•

•

Put the right people in the right place. Transformation almost always requires different skills and strong individuals. Strong CEOs avoid the temptation to build their team for comfort and safety. They aim for performance. Leave the executive team room to maneuver. Once the right individual is in the right place, executives need to be able to drive their areas of responsibility. Strong CEOs do not have the urge to overcontrol and micromanage. Emphasize accountability and performance. Responsibility and space for maneuvering need to be balanced with performance orientation and accountability for actions. Strong CEOs accept no excuses. Allow and encourage dissent. A  strong decision culture demands dissent and constructive debate rather than a team of yes men.

How much management team change is needed? Some management team changes are the norm when a new CEO is appointed. And a fundamental transformation often seems impossible without equally fundamental changes in the management structure. In 2016, following his appointment as CEO of the Swiss fluid engineering company Sulzer, Greg Poux-Guillaume replaced the chief HR officer and the CFO with outsiders to renew these core functions. He also replaced a division head with an outsider to redirect that division while also retaining several business heads to keep important know-how in house. He explained, “It’s more important to have the right people than your own people.” However, wholesale changes that replace the complete top management team can come at a cost and bear substantive risks that the CEO needs to weigh against their benefits. When an outside CEO brings in a new management team, especially if mostly from outside, there is a

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substantial risk of isolating the CEO and the new team from the rest of the organization or spreading panic that may lead many people in the lower ranks to look for alternative positions. At the same time, not making needed changes may stand in the way of implementing the strategic mandate. All too often, existing top management team members openly block, subtly boycott, or at least delay changes that run counter to their personal interests. Even when top management team members do not oppose a change, their association with the past may at times be reason enough for a dismissal. Sometimes, incoming CEOs are simply best advised to make a clean break with the past to signal change and create a fresh start. Who to let go? One of the most difficult tasks for an incoming CEO is to identify the individuals they can trust, who are collaborative, and who appear to be an asset, while also retaining individuals who are willing to voice dissent and challenge the CEO, even though they may be more difficult to work with, especially in the early days when the CEO does not yet have strong answers. In the words of Mohsen Sohi, CEO of German engineering giant Freudenberg: “If you want to do restructuring and transformation, you have to have people that are also willing to say, ‘No, you’re not seeing that right.’ ” The challenge is to quickly identify valuable constructive dissenters and separate them from toxic individuals who can torpedo any planned transformation. When choosing who to replace, CEOs may be well advised to look beyond performance and competence and also consider the personality of team members, their relational assets, their disruptiveness, and the degree of association with the past strategy. For instance, one of the CEOs we interviewed explained to us in confidence: When I changed the Head of HR, it was a values question. He told me in our first meeting that he thought that people move not because they see the light but because they feel the heat. I answered to him: “Well, I want to work with people that move because they see the light.” At this point it was clear to me that he could not be part of my team.

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WHEN SHOULD A CEO DISMISS EXISTING TOP MANAGEMENT TEAM (TMT) MEMBERS? Building a strong team often requires letting go of existing employees. While that is never an easy decision, there are some situations that may help CEOs guide their decision: •

•

•

•

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Underperformance. Some TMT members do not show the required performance and may have been protected by the predecessor. A dismissal may be needed to achieve the performance goals. Incompetence. A  strategic mandate often requires new competencies from the organization and management team. A dismissal may be needed when existing TMT members do not have the required competencies: for example, in the case of a strategy that takes the company on a new path (e.g., digitalization). Signaling change. Change and transformation often require that individuals who symbolize the past are removed to signal departure to a new direction. One example might be when an executive has been too close to the previous CEO and becomes very defensive of past strategies. Disruptive high performers. If individuals are not willing to align with the corporate direction and the CEO, they may start disseminating rumors and driving bad emotions and so may need to be replaced, even if they perform well. Toxic individuals who work against the common goal can poison the whole team. Personality misfit. A high-performance team needs a set of personalities that fits at least to the extent that they can work together. When this is not the case, dismissal may be the only option.

How quickly to replace people? Toxic people anywhere in the organization, and particularly on the management team, can destroy an organization and therefore should be removed as quickly as possible. However, a new CEO coming into the organization from outside tends not to know the personalities of the existing team and cannot tell upfront who is the loyal dog that barks and who is the silent snake that bites. A capable new CEO needs to take enough time to identify the yes men and retain the more difficult personalities who can engage in constructive criticism but not procrastinate to delay change.

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Andreas Joehle, former CEO of Paul Hartmann AG, explained: You cannot start team changes too quickly because you’re losing your credibility. If you say: “I  want transparency, openness, and trust.” And then you fire people at the first opportunity, it does not work. Trust has to grow. In two weeks there will be no trust. I have to allow them to work directly with me and let them run their units. I have to engage them first. I have to endure that even if there will be controversy. That is my job. A new CEO needs to take into consideration that removing top team members too fast may create unnecessary uncertainty throughout the organization and create a vacuum of leadership while the new management members get acquainted with the organization. In particular, when changing business unit heads, CEOs are well advised to measure their pace of change. New CEOs need to keep in mind that the existing team has important know-how. Crucially, business heads usually own relationships with customers. An impetuous CEO may involuntarily cut important assets and have customers walk out the door. Executives and customers might be pushed into the arms of the competition. Finally, the CEO may also need to confront the board if they show resistance to the desired changes. In the end, it is the CEO who needs to work with the top management team and not the board. Such conflicts are particularly critical in certain legal environments, such as the German governance system, where the management team is directly appointed by the board, and the CEO is only viewed as a primus inter pares in the executive team, weakening the role of the CEO in hiring, firing, and supervising top management team members.6 Who should we hire instead? Given the pressure of the job, an incoming CEO may be tempted to bring a complete team of trusted lieutenants to support them in driving the mandate. However, comfort and trust from having worked together in the past do not automatically translate into a high-performing team in any new environment. Rather, bringing in a team of friends or individuals with whom the CEO has worked extensively in the past may risk creating an echo chamber that isolates the CEO and possibly the whole team from the organization. Rumors about friendships and a perception that some executives have a stronger say than others may hinder the very idea of having an executive team of equal peers. It further signals that the CEO does not value the organization and its current capabilities.

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Incoming CEOs should therefore carefully consider the balance between internal and external hires in addition to the competency profile of the candidates for the top team. Many CEOs we talked to suggested a rule of thumb of hiring no more than a third of top management team members from outside the organization, at least in the first phase, unless exceptional circumstances dictate otherwise. In choosing whether to hire internally or externally, the nature of the role should also be considered. External hires are easier in staff or support functions and in new businesses, especially because the role tends to be replicable across industries, and it is often easy to hire very capable individuals who come from outside the sector and can bring true out-ofthe-box thinking. In core businesses, however, internal hires are often a better choice, partly due to their various assets, such as relationships with customers, but also because the pool of external candidates may be limited. Vas Narasimhan, CEO of Novartis, explained: I think in places like business services, finance, compliance, auditing it is relatively straightforward to bring an external person. If you bring in somebody to one of our businesses it is much riskier. If you go external it is a harder task for the external person to learn the organization, learn the way of doing things, learn all of the complexities and also drive change. Only in rare exceptions should the complete management team be replaced with outside hires since this carries the risk of losing important knowledge and customer relationships and may isolate the management team from the rest of the organization. Jonathan Lewis, CEO of Capita, highlighted: If you swap out the whole top management team, the CEO needs to have very high Emotional Intelligence to manage the situation. It is a strong message being sent to the organization when the entire top management team is removed, and their replacements are externally sourced. The CEO then needs to tread very carefully not to create an “Us versus Them.” Such radical action may only be advised in extreme situations – when the management team has been engaged in illegal activities, for instance, or when the company may need to be, in effect, “restarted.”

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Empowering the core team In addition to selecting the right people for the core team, the new CEO needs to empower them to be effective. Doing this means giving the top team members room to maneuver and drive their areas of responsibility. Strong CEOs do not have the urge to overcontrol, micromanage, or reverse decisions their team makes, particularly when the relevant executives agree on the way forward. For instance, Greg Poux-Guillaume explained: I have these four division heads who I fully support. I may disagree with some of their views at times but if you appoint somebody you should let them run with their beliefs. In these situations, I literally sit on my hands and try not to interfere. Responsibility and space for maneuvering, however, need to be balanced with performance orientation and accountability for actions. In the words of Riccardo Mollo, former CEO of Permasteelisa, an Italian global leader in the field of architectural envelopes and interior systems: I want to have people who live accountability as a sacred role, as a sacred characteristic of their daily actions. I don’t want people around who find excuses for not being able to do a task. I want people who assume responsibility, deliver, and when they cannot deliver, they at least improve the conditions so that they will deliver in the future. Particularly in large organizations, leaders may hide behind structures and processes rather than take responsibility for their decisions and actions. CEOs should not accept such excuses and should install a clear performance management system to create the highest degree of transparency possible. On this topic, Jan Jenisch, the CEO of LafargeHolcim, explained: I have a simple solution to create accountability. You need to have a good performance management system where performance really counts. A small number of financial KPIs [key performance indicators] that you then really follow. Then people stop wasting time with politicking and finding excuses. In addition to empowerment and performance management, a strong core team requires a decision culture that is based on dissent and constructive

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debate rather than a team of yes men.7 For instance, Dieter Zümpel, CEO of the travel provider Kuoni (nowadays DER Touristik Suisse AG), explained, “I want to argue with my team. Arguing is when we meet eye to eye and try to convince each other of our point of view.” Strong CEOs should not be afraid to change their view when they face a better argument than their own. In fact, CEOs who are always right and want to have things their own way should start wondering what the role of the management team is and whether they’d like to have an A team or a B team. HAVING THE TMT CLOSE IS NOT ENOUGH. REACHING OUT BEYOND THE DIRECT REPORTS IS A MUST. CEOs can utilize a number of formal and informal mechanisms to reach beyond their direct reports. The advantage of these mechanisms is that they can be used for communication and information distribution, to get access to unfiltered information, and to create a network of change agents throughout the organization. Site visits and “town halls.” CEO visits to units and subsidiaries provide an opportunity to meet small groups of employees and engage in direct communication. Meet the CEO. Breakfast, lunch, and fireside chat events provide employees with the opportunity to meet and engage with the CEO. Informal meetings. Walkarounds, lunch. CEOs can signal approachability through walkarounds and coffee kitchen chats and can systematically take second- and third-level managers for lunch. Talent development events, key employee meetings. Talent development events provide an opportunity to get to know key employees and top talent and convince them of the strategic agenda. Sounding boards. CEOs can create sounding boards made up of employees throughout the organization through open or shadow strategy processes or reverse mentoring. Social media. Social media tools such as a CEO blog, Yammer, or online suggestion systems. CEOs can create potentially anonymous platforms to engage in unfiltered dialogue. In particular, these social media tools are increasing in importance as the trend to remote working continues after the COVID-19 pandemic.

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Building deep networks While the top team is instrumental in driving the mandate of the new CEO, they cannot do this alone. The new CEO needs to build a network of additional relationships to be effective since any strategy needs multiple internal sponsors across all levels. These relationships need to include the board and, in particular, the chair and also multiple layers of leaders throughout the organization, as well as other stakeholders, such as customers, suppliers, partners, shareholders, and the investment community at large. Building board relationships As we discussed in Chapter 6, for an incoming CEO, the board should be viewed as a resource as well as a supervisor with whom they need to negotiate and sell ideas for the development of the company. In particular, outside CEOs are well advised to rely on the board as a key asset to be leveraged in various ways, including as a source of information and advice about the organization and its challenges and opportunities. In seeking advice from the board, however, the CEO needs to take into account the fact that outside directors tend to have a limited knowledge of the detailed workings of the organization, and therefore, they need to be selective on which information to use. Furthermore, many interactions put the CEO in a relationship with the board as a group rather than with individual directors. Such one-to-many relationships are rarely conducive to open and trust-based conversations but rather take the form of a sales process or a negotiation. To move beyond this more distant relationship, the incoming CEO needs to build closer relationships with at least some of the members of the board. The relationship between the CEO and the board chair plays a central role in the shaping of the new life of the company. As discussed earlier, in some mandates, the chair plays a central role in strategy and direction setting and may control the board directly or indirectly, either as an owner, a representative of an important owner, or a former executive or even CEO. As a result, in numerous cases, the chair has the most detailed knowledge of the organization, although that is not always the case. Given their experience, knowledge of the company, and central role

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on the board, first-time CEOs in particular should utilize experienced chairs as coaches and sources of advice and guidance. A strong relationship with the board often starts by creating a strong relationship with the chair that is based on a clear definition of the roles and mutual trust and transparency. For instance, a former chairman of several publicly listed companies explained his expectations: There needs to be a strong personal relationship between the CEO and the Chairman. I  expect to hear from the CEO in a personal conversation where the problems are that no one sees yet but him. I expect the CEO to tell me where something that we are working on is really in danger of derailing. Even if it’s nowhere near visible to the rest of the people. And the CEO can expect me not to panic and run straight to the rest of the board of directors but rather that I have the strength to keep it to myself and resolve it calmly with the CEO. On the other hand, Vas Narasimhan, CEO of Novartis, described this relationship from the perspective of the CEO: From my chairman I expect that we are able to talk to each other, debate. We don’t always have to agree. But he needs to be comfortable with the fact that I will take his perspective into account. That we always work to get alignment between ourselves before we take any big decisions forward. While the new CEO needs to make a strong effort to build such tight relationships, it is important to note that the board should also see it as its task to help the onboarding of the CEO by investing time and effort in building productive relationships. Building relationships throughout the organization In addition to the relationships with the board and the top team of direct reports, new CEOs are well advised to build deep and wide networks throughout the organization.8 Without such networks, the CEO will remain isolated from information flows and will end up thinking

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and deciding in a silo, relying only on filtered information in their decision-making. The CEOs we interviewed use a broad range of tools that differ depending upon the size and geographical diversity of the organization, as well as the personal style of the CEO. For instance, some CEOs use site visits and regular small-scale “town halls” to meet with leaders who are geographically distant from corporate headquarters. Other leaders create regular events, such as CEO breakfasts, to provide employees with an opportunity to directly meet with them in an informal environment. Others utilize talent development events or create sounding boards to gain input beyond the formal organization. Finally, and increasingly, many CEOs utilize social media tools to interact and gain unfiltered feedback from the organization. Virtual interaction and social media have risen in importance through new work settings, even more so in the wake of the COVID-19 pandemic. CEOs are well advised to embrace these tools and leverage them to their advantage as they are central to communicating with the millennial employee generation and beyond. While the tools differ, successful CEOs work hard to create effective networks and gain direct access to information flows. Jonathan Lewis, CEO of Capital plc, explained: I think it is really dangerous when a CEO creates communication barriers with the organization. Your very role already creates some barriers and reluctance to communication, so you have to go out of your way to break down the reluctance to communicate because of your role. For instance, I had an ad hoc meeting this morning where someone three or four levels down in the organization who was in the corporate office came in to my office and said hello. I engaged him in conversation and we spoke for thirty minutes. It is just incredible what I learnt about some things that are going on in the business in those thirty minutes. The networks that CEOs build through these direct interactions are not only important as a source of unfiltered information but also enable the CEO to create change agents throughout the organization. However, it is important to manage these relationships so that they do not become a mechanism

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to easily bypass the formal organization and reduce the authority of the CEO’s direct reports. Greg Poux-Guillaume, CEO of Sulzer, explained: I often invite some of the leaders lower in the organization to lunch and chat with them. It works as my direct reports are not threatened because I  never bypass them. But it is a way to give these leaders some face time and discuss what we are working towards. But I never act directly on what I am told in these situations. Building stakeholder relationships Finally, CEOs also need to develop networks with other stakeholders of the organization. Engaging the broader stakeholder community is becoming increasingly important for CEOs as the evaluation of organizations is shifting from shareholders’ value generation towards stakeholders’ value generation.9 For a CEO, it is no longer enough to deliver shareholder value but rather social, sustainability, and environmental goals need to be addressed on par with financial goals. Direct relationships with customers, suppliers, and partners are often important to bypass the information filtering and political agenda of the organizational hierarchy in gaining insights into the real issues in the organization. Similarly, CEOs need to engage shareholders and representatives of the investment community to be able to sell their vision for the corporation. Additional stakeholder groups include representatives of the communities where the company is active, governments, and nongovernment organizations (NGOs), which increasingly have influence over the perception and acceptance of the company in the broader public. In fact, some organizations give a wider set of stakeholders a formal voice through advisory boards or even board of directors seats, further demonstrating the importance of CEOs engaging with these stakeholders from the outset.

Notes 1 Rakesh Khurana, Searching for a Corporate Savior (Princeton, NJ: Princeton University Press, 2004).

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2 Thomas Keil and Marianna Zangrillo, “Transformation Is a Team Sport,” in Transforming Beyond the Crisis: What Organizations Need to Do Now to Seize Tomorrow, ed. 50/Brightline (Newtown Square, PA: The Project Management Institute, 2020). 3 Matthew Smith and Sean Figgins, “Five Ways Jürgen Klopp’s Leadership Style Helped Liverpool to the Top,” The Conversation, 2020, https://thecon versation.com/five-ways-jurgen-klopps-leadership-style-helped-liverpoolto-the-top-133475; Jack Lusby, “How Liverpool Won the Premier League: 5 Key Ways Jurgen Klopp Took the Reds to Title Glory,” FourFourTwo, 2020, www.fourfourtwo.com/features/liverpool-premier-league-title-win-jurgenklopp-how-he-guided-reds-glory-anfield; Aimee Lewis, “Changing Doubters to Believers: How Jurgen Klopp Turned Liverpool into Title Winners,” CNN Sports, 2020, https://edition.cnn.com/2020/06/25/football/jurgenklopp-liverpool-premier-league-title-spt-int/index.html. 4 Connor Dunn, “The 23 First-Team Staff Jurgen Klopp Has Assembled in Four Years at Liverpool,” Liverpool Echo, October  8, 2019, www.liverpoolecho.co.uk/sport/football/football-news/23-jurgen-klopp-liverpoolstaff-16895370. 5 Thomas Keil and Marianna Zangrillo, The New CEO Assassin or Agent of Change? (Zurich: University of Zurich, 2020). 6 In the German governance system, the executive board (in German, Vorstand) jointly holds executive powers and therefore joint responsibility for important decisions. As a result, formally, the executive board is not subordinate to the CEO as in the US or UK governance system but rather reports directly to the supervisory board. The CEO is therefore viewed as the chairman of the executive board (in German, Vorstandsvorsitzender). In practice, however, CEOs of German corporations often wield powers not dissimilar to those of a CEO of a company in the AngloSaxon governance system. See, for instance, David F. Larcker and Brian Tayan, Corporate Governance Matters, 2nd ed. (Old Tappan, NJ: Pearson, 2016). 7 Kathleen M. Eisenhardt, “Conflict and Strategic Choice: How Top Management Teams Disagree,” California Management Review 39, no. 2 (1997). 8 David Krackhardt and Jeffrey R. Hanson, “Informal Networks,” Harvard Business Review 71, no. 4 (1993). 9 Julian Birkinshaw, Nicolai J. Foss, and Siegwart Lindenberg, “Combining Purpose with Profits,” MIT Sloan Management Review 55, no. 3 (2014); O. Rodrigues Vila and S. Bharadwaj, “Competing on Social Purpose,”

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Harvard Business Review (2017): 94–101; Thomas W. Malnight, Ivy Buche, and Charles Dhanaraj, “Put Purpose at the Core of Your Strategy,” Harvard Business Review 97, no. 5 (2019); Marc Pfitzer, Valerie Bockstette, and Mike Stamp, “Innovating for Shared Value,” Harvard Business Review 91, no. 9 (2013).

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9 DRIVING RESULTS

Corporate transformations tend to be painful for most involved parties as they create uncertainty and considerable anxiety among employees. A few people quickly get exciting roles to drive these transformations, but most end up in long limbos, at the end of which they either find a way to deliver value that resonates with the new leadership or end up losing their jobs. In fact, even for those leading the change, transformational roles are almost like gambling: one can win or lose, but no one can really tell up front, and therefore they come with a lot of excitement but often equal amounts of stress. In September 2011, the board of Nokia announced the appointment of Stephen Elop as the new CEO.1 Elop, the first non-Finnish CEO at Nokia, joined from Microsoft, where he had led the business division responsible for the Microsoft Office suite and Microsoft Dynamics, Microsoft’s enterprise resource-planning solution. Elop joined Nokia at a critical juncture.2 While the company had long dominated the mobile phone market, with the shift to smartphones and

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the emergence of ecosystems supporting different mobile operating systems, Nokia had fallen behind Apple, with its IOS-based ecosystem, as well as Samsung and the broader Google Android ecosystem. Against this backdrop, Elop kicked off a dramatic transformation at Nokia. Starting with an internal announcement that described the company as a man standing on a burning oil platform, he led a strategic change that abandoned Nokia’s own software platform in favor of using the platform of his former employer Microsoft. This dramatic change of strategic direction led to a complete restructuring of Nokia’s operations and the dismissal of over 21,000 employees in the following year and a half as part of an attempt to completely overhaul Nokia’s product portfolio. However, despite the dramatic transformation attempt, Nokia continued to fall behind the competition, and its new products and the Windows Mobile ecosystem failed to take off, reducing Nokia’s market share in smartphones from over 30 percent to 3.5 percent and its overall market share from over 23 percent to below 15 percent. As a result, in September 2013, only two years after Elop’s appointment, Nokia’s board of directors decided to sell off the mobile phone business to Microsoft and to concentrate on its telecommunications network infrastructure business. In connection with the sale, Stephen Elop left Nokia to rejoin Microsoft as the leader of the mobile business. He was succeeded by Risto Siilasmaa as interim CEO of Nokia and ultimately by Rajeev Suri, the head of the telecommunications network infrastructure business. Given the intense personal cost of transformation, it is surprising that many leaders forget that to drive results, motivating their teams beyond financial incentives should be the number one priority in their attempts to gather and channel the energy of the organization. Having a sensible plan that promises to lead to better profit is not enough to keep people engaged and going the extra mile to deliver that plan. For the organization to truly embrace change, leaders need to win both the hearts and minds of their teams and of the organization at large. New CEOs who want to succeed in executing their strategic mandate, in particular if it involves large-scale transformation, need to engage a wider community of employees. They need to define a vision and strategy employees can believe in and ultimately engage their people beyond the call of duty. Most people are motivated to work harder if they perceive they are part of something bigger and meaningful.

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On the other hand, winning employees’ hearts and minds is not only about finding the right story to tell, but also requires leaders to live the change to avoid organizational chaos. Examples of top teams who announced lofty strategic goals and, just a moment later, continued business as usual unfortunately abound. To win hearts and minds, corporate leaders need to lead by example, show true appreciation for each role and individual in the organization, make themselves visible at all organizational levels, and most importantly, walk their talk. Ghost CEOs and executives closed in their offices, who devise the vision and strategy in the inner circle or who simply do not walk the talk, are bound to lose the support of their organizations. Finally, even when forced to make difficult decisions, they must make them with fairness, transparency, and empathy. With these key features in place, the organization at large is more likely to become engaged and believe that leaders are serious about change and are not in their roles just to cash in. Beyond engaging the organization, however, new CEOs also need to carefully plan the pace of change and the priority of actions. This requires balancing the needed and desired pace of change with an implementation approach that does not overburden the business. All too often, strategic mandates fail either because the organization engages in too little action to develop the needed change momentum or because it becomes overburdened with a slew of activities that is beyond the organization’s change capacity. Finally, new CEOs also need to focus on continuous feedback and performance measurements to keep track of and communicate progress. In summary, a winning recipe for winning hearts and minds for transformation requires at least the following ingredients: • • •

a vision and strategy focused on a meaningful goal; a broad movement of employees to support it; authenticity, compassion, consistency, fairness, and transparency in the behavior of the leaders; • an implementation approach that carefully weighs the pace and sequence of change; and • continuous performance measurement and feedback. Capable leaders who take these ingredients into consideration can also make challenging strategic mandates happen, even in difficult times.

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Establishing and communicating a compelling vision Implementing strategic mandates best begins with a clear long-term vision and a solid and well-communicated strategy. Long-term vision and strategy provide clarity and direction for decision-making to the entire organization and allow decisions to be made quickly. In contrast, without a clear strategy, decisions can easily become inconsistent, and the organization can keep spinning in circles. Only in extreme situations, when financial distress endangers the survival of the organization, might new CEOs begin making decisions without a defined vision and strategic framework. Strategic vision should be built around a purpose that is broader than just a desired market position or financial targets.3 As Olaf Swantee, former CEO of UK-based telecommunications operator EE and Swiss-based telecommunications operator Sunrise, explained, “It is important to give people a sense of purpose. People get excited when they feel they work for something bigger and it lets them go further than if you just set financial goals.” Purpose defines an organization’s reason for being, what it delivers to society, and why society should grant it a license to operate. It should capture the organizational and cultural identity, making sense of the past and providing an outlook to the future.4 However, a lofty purpose is not enough if it is not accompanied by a long-term vision that provides clear goals and a credible pathway to make them happen. Only then should more tangible targets be set. To be motivating, targets should strike a balance between being challenging and requiring a stretch but being realistic enough not to be demotivating. Dieter Zümpel, CEO of the Swiss-based travel provider Kuoni (nowadays DER Touristik Suisse AG), explained: The bar has to be set just as high that with the greatest effort, you can cross it. If people think they can jump 1.70 meters high, and then someone sets the bar at 2.50, they don’t even try to jump. But if it is set at 1.80, 1.90, then they might try. They will work hard to improve their performance, and that’s what targets should do. Once the vision, strategy, and targets are set, communication begins. The mandate of external CEOs typically involves a departure from the

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past. However, CEOs may fall into the trap of overemphasizing what is new and different. Just as a good strategy needs to build on the existing position and strengths of the company, in a way so does strategy communication, which needs to build on the history and culture of the company to gain buy-in from the organization. To be effective, strategy communication needs to be echoed across the whole organization and be reiterated time after time. Rainer Hundsdörfer, CEO of Heidelberger Druckmaschinen, described the process to us: You have to talk to the staff. Not only first level and second level managers but all levels of the organization. You have to constantly pick them up and re-motivate them. We have very intensive communication at all levels. I also have a CEO blog. So we’re playing all the angles that we can think of. And also on the capital market, the only thing that helps is to tell the story over and over again. Have a good story and tell it repeatedly so they begin to believe in it. Especially with capital markets that is important because people think short-term and forget quickly. You just have to keep grinding the wheel of communications. Given the very different audiences for strategy communication, new CEOs need to adapt the message depending on the target while maintaining consistency when it comes to the core content. Good strategy communication is based on the needs and characteristics of the message’s receiver. To be able to adapt the messages and not lose consistency calls for a combination of clarity and simplicity, and often images can be useful. For instance, Andreas Joehle, former CEO of Paul Hartmann AG, explained how he used an image to overcome language barriers and create buy-in: We developed an image of our strategy to cross language and cultural boundaries. We focused on where we are and where do we want to go for the next five years. And what are the important building blocks on that journey. It was developed by teams across the organization rather than members of the top hierarchy. It has helped us to explain what we are trying to do.

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WHAT SHOULD THE NEW CEO KEEP IN MIND WHEN COMMUNICATING THE STRATEGIC VISION? Communication of strategic visions should be built around five principles: Relevance. Connect messages to problems and concerns faced by different groups in the organization to make the communication relevant to the audience. Shop-floor employees and first-line supervisors can rarely relate to high abstract visions, but they are the ones who need to convert the vision into action. Consistency. Repeat consistently and act upon a small number of key messages to gradually shift the thinking in the organization. Simplicity. Emphasize a few simple messages. Even in complex companies, the core of a transformation can often be boiled down to three to four overarching themes that are easy to understand and provide direction. Clarity. Structured messages and unambiguous communication are more easily understood and more likely to lead to action. Even when topics cannot easily be simplified, clear, structured, and most of all transparent communication will make a difference in helping employees see what is important. Frequently, employees in the organization understand the existing problems far better than top management thinks and may respond better to clear and open communication than to ambiguous and sugarcoated messages. Images. Images tend to capture minds and engage people much more strongly than abstract language.

External communication also plays a special role when it comes to presenting the strategic mandates to the wider stakeholder community since it commits the organization in a much firmer way than internal communication does, given the wider and potentially more judgmental audience. In fact, CEOs often use external communication to signal to their own organization the elements of their strategy that will not easily be changed.

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An organization-wide movement for change While initially the new CEO focuses on building a platform beyond the immediate top management team in order to access information and acquire a deeper support, this platform becomes even more important when CEO activities shift towards driving results. The personal platform of the CEO in the organization needs to be turned into a social movement of change agents that multiply the CEO’s effort in driving actions in line with the strategic mandate. Organization-wide social movements for change are particularly important in transformation and turnaround mandates because these change-emphasizing mandates often threaten existing power structures. As a result, many organizations develop what is sometimes called a “middle-management permafrost,” a term used to indicate a ground that continuously remains frozen for two or more years. This comes into play in management in situations in which middle managers actively resist any changes that threaten their power and position and filter and alter messages upwards and downwards. To break this permafrost requires a large enough number of change agents at all levels of the organization. To create change agents, new CEOs have three options. First, they can bring in new leaders from the outside. However, the downside of external recruits is that they are not well connected in the organization and, despite being recruited to speed up change, may end up slowing it down and reducing impact. Second, CEOs can realign responsibilities within the organization in ways that break current organization silos. Strategic personnel replacements are often needed since it is difficult to ask managers who created a structure or system to later undo it. It is also a challenge to get people to move out of their comfort zones unless they are basically forced by a new management structure and responsibilities away from what they have done in the past. An example of this was Nokia, during its very successful years in the late 90s and early 2000s. Many leaders would rotate roughly every two years and were given responsibilities completely away from what they had done in the past, forcing the organization to think out of the box and put leaders in each other’s shoes.

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Third, it is equally important to convince internal leaders to align with the new direction. Andreas Joehle, former CEO of Paul Hartmann AG, explained: You need internal change agents. You cannot achieve change with outside recruits only. You also need people who buy-into your change with awareness and then work with and for you. They are much more valuable in the change process because their credibility is much higher. I see them as converts. They are much stronger as change agents in the aftermath than those who come in from outside. In creating these change agents, it is important that the CEO is aware of the opinion shapers throughout the organization, many of whom may reside outside the formal power structure but may be highly influential. These people need to be identified through the personal platform of the CEO and possibly considered for more visible leadership positions to drive change in a more effective manner. Despite the proliferation of digital tools, gaining buy-in across the organization and from stakeholders at large continues to be a process that requires a large number of one-on-one meetings and other high-impact relational activities. The CEOs we talked to estimated that they spent well over 30 percent of their time on this kind of stakeholder engagement. Mario Greco, CEO of Zurich Insurance Group, explained: “To drive results, the morale of the organization really matters. The employee engagement, the employee support, the shareholders’ support. These things are not managed by Twitter or by other social media. They’re managed one-to-one in meeting after meeting.” Individual engagement is important because, first and foremost, people work for people, not for topics or organizations. It helps reduce uncertainty and builds trust in the change initiative throughout the organization. It is therefore important that the new CEO puts effort into and emphasis on connecting with people. CEOs who are remote and aloof often find it difficult to instigate sustainable change and motivate the organization to face adversity.

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Leadership behavior In driving results, the leadership behavior of the CEO and the top management team plays a central role in setting examples and motivating the organization to go the extra mile. Three characteristics of leadership behavior are particularly important: authenticity, transparency, and compassion. Authenticity Given the intense scrutiny CEOs are under, their leadership behavior needs to be authentic: that is, it needs to be honest, open, truthful, and built on the self-awareness of the leader.5 CEOs need to be clear in what they expect from people and then lead accordingly. As we discussed in the previous chapter, new CEOs need to be explicit from the outset in what they stand for and act in line with what they preach. Jonathan Lewis, former CEO of Amec Foster Wheeler and CEO of Capita, explained: “You have to be passionate. People throughout the organization need to see you as a committed, engaged, determined leader that is authentic, that has the best interests of everyone at heart.” Authenticity in behavior creates predictability and trust throughout the organization. In particular, since the CEO role is quite exposed, any misalignment between statements, communication, and actions quickly leads to gossip, disengagement, and in extreme cases the departure of capable and no-nonsense individuals. At times leaders believe they can adjust their behavior situationally. However, the slight misalignment that invariably occurs in these cases rapidly leads to distrust of the organization.6 Transparency All too often, decision-making in companies is opaque to say the least. Hiring happens behind closed doors, and it is not clear to most why candidates are chosen. Salary differences are known to exist but are never openly communicated, let alone justified. Proposals are shut down, often due to individual leaders’ prejudices and personal views. Such lack of transparency has an important demotivating impact on employees and may lead to a situation in which many individuals mentally resign, and others leave altogether, because the implicit assumption underlying this behavior is that employees cannot take the truth and therefore had better be lied to.

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TRANSPARENT VERSUS OPAQUE DECISION-MAKING When busy revamping the organization and, in extreme cases, struggling with the company’s survival, new CEOs may communicate without paying attention to how it is done and the impact it will have. Extensive conversations with successful CEOs and chairs suggested that there are some principles that guide a successful communication style: Transparent leadership includes • • • •

open communication, followed by consistency in actions; honesty about the required means, even when they sound painful; fairness in how the measures are being applied (no decisions in the “old boys’ club” or kitchen cabinet); and willingness to actively listen.

Opaque leadership often involves • minimal or no communication or good communication without consistent action; • surprises to the organization (not walking the talk); • playing favorites (no transparent and performance-based promotions); and • one-way command structure.

To drive results, new CEOs should be honest and not be afraid to openly communicate. In fact, radical transparency helps leaders build trust, especially when the going gets tough. It involves a willingness to listen and then make fair decisions. Most employees can take a wellreasoned and transparent decision, even when they may not like the outcome. Andreas Joehle, former CEO of Paul Hartmann AG, explained: For me it is absolutely crucial to make transparent decisions. What were the decision criteria? What did you think about them? Why do some projects get cut? That still doesn’t mean that the people like the decision but the retention rate of good people is much higher than if you do this behind closed doors in some kind of kitchen cabinet decision.

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Compassion Being a CEO often requires making tough choices. As organizations and markets change, dismissals cannot always be avoided. It is hard to imagine that anyone would enjoy dismissing people, but leaders do differ substantially in their degree of compassion. Some leaders are able to relate to the pain of the dismissed employee and do what is possible to minimize it. They explain the reasons for the dismissal, do not make the event personal, and show emotional support. Other leaders act indifferently, do not take the time to explain the reasons, and may even play the blame game or work up anger when dismissing employees. In these cases, the relationship between the two parties tends to be destroyed, the employee leaves hurt, and the organization’s brand may be tainted. The best leaders understand that employees and roles rarely fail because of the person, and most dismissal is the outcome of an objective company situation or a matter of wrong circumstances. Capable leaders help dismissed employees understand the reasons and facilitate the process so that their careers can be redirected. A clear sign of a successful exit is when the two parties maintain a relationship beyond the dismissal or when the leader helps the leaving employee to find a new role, in the same or another company. Compassion can sometimes be confused with weakness, but constructive compassion means separating the individual from the situation, as well as respecting others’ dignity. And that is not because people always meet twice in life, but rather because compassion is a sign of being emotionally capable of dealing with people – a requirement for leaders since competent sharks can do more harm than good in the long run for the culture of a company.

Pace of change Any board wants results from a new CEO – the sooner the better. But when hiring CEOs, boards should critically reflect if it isn’t better to trade a more measured pace for sustainable long-term results. Two types of CEOs CEOs tend to fall into two broad groups. One group operates based on a limited repertoire of actions and templates that they execute across

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appointments in different companies. This behavior is often found in turnaround leaders. While these executives tend to have the strength of being fast in creating initial change, the sustainability of results can be a question mark since standard solutions rarely fully fit different contexts and changing situations. Once their standard repertoire has been executed, such leaders often run out of ideas and therefore fail to create a long-term platform for renewal. A second group of leaders operates instead on broader principles and only uses templates to understand and analyze the company they lead, rather than to prescribe their actions. This second group may need a little longer to initially change an organization, but results have the potential of being more sustainable, and they may be more capable of steering their organizations toward a broader set of demands as time goes by. For boards of directors, the choice may very well be one of instant satisfaction versus long-term results. For all but the turnaround mandate, boards may be better advised to forgo the instant satisfaction and settle instead for the principle-based, albeit somewhat slower approach.

Timing always matters Even with a more measured pace, some degree of timing greatly matters for the success of executing any strategic mandates. When a new CEO is appointed, a window of opportunity during which the organization is more receptive to change opens up. During this window, a new CEO may find it easier to adjust the strategy, change the organization, or initiate other change projects. With every month that the CEO has been with the organization, this initial change readiness wears off, and changes become increasingly difficult. With time, any new CEO starts feeling the pressure that he or she must show action, and after a while, inaction is interpreted as a sign of weakness by the board and other stakeholders. That holds particularly true when the mandate calls for transformation, even more so for a turnaround. For instance, John Flannery at GE was ousted from his position after 14 months because the board grew increasingly impatient with the slow progress and therefore lost trust in his ability to turn the company around. It is against this background that many of our interviewed CEOs say that time is of utmost importance in initiating change, although the speed

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needs to be weighed against other considerations and, most importantly, must not have a negative impact on sustainability. Just as changes made too early during the tenure of the CEO may be ill informed and therefore unlikely to be successful, changes introduced too late in the tenure are likely to happen when the organization has already entered a state of inertia and resistance. CEOs therefore need to develop the capability to identify the right time for making changes. Mario Greco, former CEO of Generali and CEO of Zurich Insurance Group, explained: For many decisions you cannot say that they are right or wrong in principle. It depends on the right time You have to understand exactly at what stage you are with the organization at a point of time. What is needed now; and then do it right away. If you do it a year later, it might just be very wrong. Or if you do it a year before, it might just be not the right time either.

Driving strategic mandates is a marathon Driving most strategic mandates should be seen as a marathon, maybe run through a series of sprints, but with a very clear focus on controlling the pace. CEOs need to consistently push change over a long period of time and need the patience to await results, ultimately striking a balance between pushing the teams hard and not stretching them beyond their capacity. For CEOs, this often means holding back and carefully pacing their changes, a skill that does not always come naturally to leaders. CEOs tend to be high energy and highly self-confident personalities. Driven by aggressive goals and ambition, these leaders tend to be two steps ahead of their organization, jumping from new idea to new idea and fighting a new battle every day. CEOs who run too far ahead without ensuring the business is following are at risk of losing their organization and ultimately failing to implement their agenda. In determining the right pace of change, new CEOs need to be mindful of the change capacity of their organizations. Organizations differ widely in their ability to adjust to organizational or personnel changes and implement new initiatives. If not carefully planned and executed,

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LEADING A LARGE-SCALE TRANSFORMATION WHILE NAVIGATING THE CORPORATE POLITICS Leading transformation is always a senior leadership task. The CEO and the senior leadership team need to commit substantial time and attention over a longer period of time to follow through on the implementation of large-scale change. Often, transformations fail because, halfway through the change, the senior leadership shifts attention to different projects or has second thoughts when the transformation hits the first roadblocks. Transformation can become a battleground for executive power play. While some executives may see benefits in blocking or at least impeding transformations, others may see the opportunity to grab control of areas they may not even be interested in, to foster their own power throughout the organization. CEO ownership and commitment are central to balancing the diverging interests in the top management team. Corporate program offices and chief transformation officers.7 Corporate program offices can institutionalize support and coordination across initiatives, and the nomination of a chief transformation officer assigns responsibility for the transformation to a single role. However, these structures can create additional bureaucracy and tend to be seen as separate from the “real business.” Often, lightweight coordinative structures such as joint steering committees may be a better option to ensure commitment of existing business units, coordination across initiatives, and limited overhead. Combining limited bureaucracy with sufficient resources. Finally, lightweight structures for coordination should not be understood as lack of resources or, even worse, as lack of focus. A successful implementation of large-scale transformation requires dedicated resources outside the business unit budgets. Without dedicated resources, the transformation and its leaders become captives of the very business units they are meant to transform.

organizational changes can destroy informal communication, coordination, and even decision-making processes, which it will then take time to rebuild. CEOs are also inclined to underestimate the time it takes to

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win the hearts and minds of people throughout the organization for a transformation. Our conversations suggest that even highly driven leaders need to learn the art of sometimes letting go and giving their organization the time to catch up, even when that may require sacrificing some projects. As Alexander Zschokke, former CEO at Franke, a Swiss industrial manufacturer of kitchen and bathroom products, suggested: “If occasionally a ball drops or an egg breaks that is ok. You need to keep the big picture in view and it is more important that on balance the results is positive.” CEOs need to develop self-discipline and self-control, making sure not to breathe down their leadership team’s neck or burn themselves out trying to win every battle instead of concentrating on winning the war. CEOs also need the capacity to withstand the external pressure from different stakeholders for either a faster or a slower pace. As Rainer Hundsdörfer, CEO of Heidelberger Druckmaschinen, explained: You just have to have a thick skin. There will be all sorts of people who try their best to second guess you: ‘Why is it taking so long? And why aren’t you doing this and that?’ You have to have perseverance and be able to hold out.

Sequence of actions Most new CEO mandates involve some degree of strategic change. As the change capacity of any organization is limited, CEOs need to think not only about the pace of change but also about the sequence of actions. To successfully drive results, CEOs should identify the building blocks for implementing their vision and strategy and prepare a step-by-step change agenda, rather than trying to implement their vision in a single sweep. As Mohsen Sohi, CEO of Freudenberg, explained: “No organization has the capacity to work on a hundred things. You have to decide the critical few and time phase them for more effective implementation.” Georg Müller at MVV, the German energy company, provides an opportunity for reflection. When Müller joined the company, he found

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an organization that was not tuned to strategy work and, as a result, had fallen behind the competition. The organizational brand had also become somewhat stale, and the organizational culture had become an uninteresting topic for the leadership. Rather than starting multiple large-scale change projects simultaneously, Müller decided to first engage in a vision definition and strategy project. He implemented the resulting strategy, and only after three years, when the path had become clear to the organization, did he add focus on brand and culture. He explained: We also decided at that time that we do not take up culture in parallel, but first position the company strategically. To first create success in the business and then add a culture project to it. It would have been just too much for the organization. While a culture-focused project is often an enabler for a transformation, each organization needs to assess its situation and what can be taken in parallel and prioritize in line with what it can absorb and what resources are or can be made available. The best advice to a new CEO is when choosing initial projects, to focus on relatively simple problems, where changes can produce small early wins that create a positive change dynamic. As discussed in the chapter on taking charge, there is little room for initial error, and therefore, early projects should be chosen very carefully, based on chances of success as well as potential for impact. Following initial successful projects, it becomes possible to create a sustainable platform to add additional and possibly more complex projects. While the exact nature of the steps will differ from organization to organization and will depend upon the change capacity, organizations should typically focus on two to three important and high-level priorities at a time. This focus makes it easier to keep top management attention and may allow bundling of resources to make substantive progress. Unfortunately, many organizations have started tens of change initiatives, only to find out that they could not support all of them.8 It is only in turnaround situations that multiple priorities may have to be dealt with simultaneously, given that timing and choice of initial actions are often driven by external circumstances and financial distress. For instance, when Mario Greco joined Generali as CEO, the firm was in

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financial distress with an immediate need to be financially restructured. Greco explained: If you have to do a restructuring in a very limited time you have to do many things in parallel. You cannot do things sequentially. You have to do many things in parallel because time is of the essence in a restructuring. However, in turnaround situations, CEOs are also well advised to distinguish between actions that are needed to stabilize the financial situation of the company in the short run and more fundamental transformations that can take place over time.

Continuous feedback and communicating progress To drive sustainable results, CEOs need to take performance measurement and feedback to internal and external stakeholders seriously and regularly communicate progress towards the goals set within the initial mandate. Constant performance measurement and feedback and their communication should not be mistaken for operational and short-term orientation but should be seen as part of the long-term strategic vision. From the outset, CEOs need to establish clear long-term goals linked directly to the vision and strategy and determine relevant and objectively measurable performance indicators to be able to monitor progress, identify the need for corrective actions, and most importantly keep stakeholders engaged in what often are multiyear processes.9 DSM provides an opportunity for reflection. In the early 2000s, DSM was a chemicals company focusing largely on commodity businesses, with a strong emphasis on petrochemicals. During the 1990s, given the increasing competition, which was driving an ever-growing need for scale, DSM fell behind. To respond to this challenge, DSM’s management team developed a strategic vision to move to higher-value businesses management, which called for a large-scale transformation and a gradual move to higher growth specialty businesses. To implement the vision, they embarked on a transformation journey that consisted of a gradual divestment of the petrochemical business; a large number of relatively

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SUCCESSFUL CEOs DRIVE RESULTS Surprisingly, only a fraction of CEOs drive results. Many CEOs stay on the job despite constant decline of financial performance, talent leakage, and other challenges. There are, however, some guiding principles that will improve the odds and are likely to maximize the results within the given constraints. Establishing and communicating a compelling vision. Driving results begins with developing a compelling vision that has the potential to win hearts and minds throughout the organization. To do so, it is necessary that the firm states a corporate purpose that goes beyond financial results and that then needs to be connected with a longterm strategic vision. Also, that needs to be linked to a credible pathway to success and needs to be communicated effectively. An organization-wide movement for change. To move from a vision and strategic plan to action, the new CEO needs to leverage the personal platform built at the beginning of their tenure to create an organization-wide movement of change agents. These change agents can come from outside recruitment and the “conversion” of inside influencers. Leadership behavior. To be credible as a leader during change, new CEOs should engage in leadership behavior that is authentic and transparent and that exhibits compassion. Pace of change. Boards often need to trade off a more measured pace of change for more sustainable results as very rapid change may require the application of inflexible templates that provide only short-term fixes. Even with a more measured pace, timing is essential, and pace needs to acknowledge that change is a marathon in which the organization’s change capacity needs to be acknowledged. Sequence of actions. CEOs need to think about the sequence of actions and the change load these actions demand of the organization and identify a small set of key priorities. How many actions can or need to be taken in parallel depends on both the organization and the mandate. Continuous feedback and performance measurement. To ensure success in executing the mandate, performance measurement from a longterm perspective is central. Used as a strategic tool, it aligns stakeholders over longer periods of time.

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small acquisitions in new growth businesses such as health, nutrition, and materials; and the launch of a large number of new business ventures. The transformation was further turbocharged when Feike Sijbesma became CEO in 2007. Through additional acquisitions and investments in growth businesses, DSM gradually positioned itself as a life and material science company. What makes DSM’s transformation interesting is not only the persistent focus on transformation but also the continuity in follow-up on a strong strategic vision and the coherence in communicating progress. Early in his tenure, Sijbesma had already provided a clear vision of DSM as a future life and material science company and provided a clear roadmap for the transformation. In every analyst and shareholder presentation, he returned to the vision and identified the steps already taken and the next steps to come, thereby providing clarity, continuity, and leadership during a time when the corporation completely changed.10 This demonstrates that when used as a strategic tool, continuous feedback and performance measurement can be invaluable ways of aligning stakeholders inside and outside the organization.

Notes 1 Nick Clark, “Nokia Fires Boss as It Battles to Turn around Its Fortunes,” The Independent, September  11, 2010, www.independent.co.uk/news/ business/news/nokia-fires-boss-as-it-battles-to-turn-around-its-fortunes2076496.html. 2 Pekka Nykänen and Merina Salminen, Operaatio Elop [Operation Elop] (Helsinki: Teos, 2014); D. J. Cord, The Decline and Fall of Nokia (Helsinki: Schildts & Söderströms, 2014). 3 Thomas W. Malnight, Ivy Buche, and Charles Dhanaraj, “Put Purpose at the Core of Your Strategy,” Harvard Business Review 97, no. 5 (September– October 2019), Julian Birkinshaw, Nicolai J. Foss, and Siegwart Lindenberg, “Combining Purpose with Profits,” MIT Sloan Management Review 55, no. 3 (2014); Julie Battilana, Anne-Claire Pache, Metin Sengul, and Marissa Kimsey, “The Dual-Purpose Playbook,” Harvard Business Review 97, no. 2 (March–April 2019). 4 Robert E. Quinn and Anjan V. Thakor, “Creating a Purpose-Driven Organization,” Harvard Business Review 96, no. 4 (July–August  2018), Rebecca

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Henderson, Reimagining Capitalism in a World on Fire (New York: Hachette, 2020). 5 Bill George, Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value (San Francisco, CA: John Wiley & Sons, 2003). 6 Being authentic as a leader and aligning leadership behavior with the leader’s personality should not be confused with not adapting the leadership style to the situation. Leaders need to understand the situation they are facing and adapt their leadership style accordingly; however, they need to do so in manner that is coherent with their own personality as otherwise leadership behavior turns into role play that is easily seen through by the employees and destroys trust. 7 Michael Boppel, Sven Kunisch, Thomas Keil, and Christoph Lechner, “Driving Change through Corporate Programs,” MIT Sloan Management Review 55, no. 1 (2013). 8 Rose Hollister and Michael D. Watkins, “Too Many Projects,” Harvard Business Review 96, no. 5 (2018). 9 Robert S. Kaplan and David P. Norton, The Balanced Scorecard: Translating Strategy into Action (Boston, MA: Harvard Business Review Press, 1996); Robert S. Kaplan and David P. Norton, The Strategy-Focused Organization: How Balanced Sorecard Companies Thrive in the New Environment (Boston, MA: Harvard Business School Press, 2001). 10 Jean-Pierre Jeannet and Hein Schreuder, From Coal to Biotech (Berlin: Springer, 2015).

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PART III

THE NEXT ACT

10 THE LIFE CYCLE OF A CEO

In Part I, we talked about appointing the CEO, and in Part II, we reflected on the time when a new CEO is appointed or joins the company. In this chapter and the next, we look beyond the CEO appointment and initial mandate towards the full tenure of a CEO and their eventual departure. This chapter focuses on the life cycle of the CEO, and we start with a powerful example of a CEO who did not protect his position and realized when it was time to move on, despite no objective necessity to do so. With his 50th birthday approaching in 2019, Christoph Tonini was reflecting on his career. By all accounts, he had much to be proud of. Coming from a family of immigrants, he had pursued a successful career that spanned positions in media companies in France, Switzerland, Hungary, and Romania. In 2013, at age 44, his career had been crowned when he was appointed CEO of the Tamedia Group. At the time of his appointment, the Tamedia Group (nowadays TX Group) was in a period of transformation. With its origin in newspapers, the board and management of Tamedia had realized that continued success

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would require repositioning the company and had started to diversify into digital media. Leading the digital media efforts had become Tonini’s ticket to the CEO position. Under his leadership, Tamedia’s transformation was further intensified, and today, 84 percent of its profits come from digital products, mostly online marketplaces. Despite this success, or possibly because of it, Tonini started to reflect on his future. Although the transformation had been successful so far, it was by no means complete, and he was asking himself how many more times he would need to reinvent the company and himself in the process. With his 50th birthday approaching, he was still relatively young and could at least theoretically move on to lead another company or two during his career. At the same time, leading Tamedia had been personally very demanding and had required many sacrifices, so he was also considering taking some time off and potentially reorienting his career. After long reflection and discussions with his wife and some close friends and finally negotiations with the board, Tonini and the board agreed that he would step back from the CEO position in the summer of 2020 while continuing to support the company as a board member. As this personal story suggests, there comes a time for every CEO when they begin to look beyond the initial mandate and think about life after the CEO position.

CEO life cycles Today, the median tenure of CEOs is less than five years,1 and over 15 percent of all CEOs depart within two years.2 At the same time, some CEOs have successfully led their corporations for over 30  years, with Warren Buffet being the longest-standing CEO of a large public company, with over 40  years at Berkshire Hathaway.3 In other words, the tenure of CEOs can differ considerably in length, although in some cases that becomes an asset for the company and in others a liability. Despite the differences, there are distinct stages in the life cycle of every CEO that pose unique challenges, which we have attempted to depict in Figure 10.1.4 Understanding this life cycle is important for both the CEOs and the boards supervising them. We believe that the life cycle of a CEO begins before the first day in the new job. In fact, the company’s due diligence during negotiations for an

the life cycle of a ceo

Initial Mandate • • •

Taking charge Creating the personal platform Driving results

Beyond the Initial Mandate • •

Defining the second mandate Reinventing yourself over and over

Moving On • • •

The next gig Moving up to the board Becoming an investor

Figure 10.1  Life cycle of a CEO

outside CEO and the preparation for day one following the appointment are central elements of a successful CEO tenure. This is followed by a transition period during which CEOs are taking charge of the organization and building their personal platform, as discussed in the previous chapter. The transition period is followed by a longer period during which the CEO drives results for the initial mandate. During this period, CEOs may initially experience a honeymoon period that may last from several months to up to a year,5 during which their activities are generally perceived positively, and they may be given the benefit of the doubt. Towards the end of the honeymoon period, first reality checks tend to take place. Corporate life is never without hurdles and setbacks, and it is inevitable that some projects will not succeed or will not be in line with stakeholder expectations. Furthermore, perceptions of performance by stakeholders may depend on how the CEO responds to these setbacks. In extreme cases, early CEO departures, such as the dismissal of Per Utnegaard at Bilfinger or John Flannery at GE, can even happen within the first year of appointment, following a reality check and the insurgence of conflicts that the board and the CEO are not able to overcome. The transition period, the honeymoon period, and the reality check are all part of the first mandate, during which the CEO is expected to make substantive progress on strategic and financial goals or at least gain the trust that he or she will be able to deliver according to expectations. A  substantive number of CEOs are dismissed after two to three years, after failing to make sufficient progress towards the initial strategic mandate. Other CEOs, in particular when focusing on turnarounds, may leave on their own initiative once the initial mandate is accomplished. For long-term tenures, CEOs need to reinvent themselves beyond the initial strategic mandate. That involves reinventing the company’s strategy to remain relevant in a changing environment. One of the central questions that boards, and also CEOs, should ask themselves is how many

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times a CEO is able to credibly reinvent a new course of action for the same company and lead the change that may need to undo some of what they created themselves. Peter Voser, former CEO of the Dutch oil company Shell and current chairman of ABB, explained: “I’m a strong advocate that a CEO shouldn’t be on the job for more than eight years. Because at some point, you can’t reinvent yourself over and over again.” There is also a risk that CEOs become proprietorial about the company and can no longer take the needed distance to assess the situation in an objective manner. Although it may sound extreme, CEOs could be compared to political leaders, such as presidents or prime ministers of countries. Most Western democracies limit their leaders’ tenure to two mandates, while very long tenure, such as Putin or Xi Jinping, make the country’s leadership system and principles less credible and often lead to a concentration of power beyond what is good for the country. During the life cycle of a CEO, the leadership approach and style often change. While at the beginning of the tenure, the CEO is often involved in the detail of the changes needed to drive the strategic mandate, over time, they may need to step back from some of the more operational issues and delegate responsibility and accountability. This will give them the time and mental resources to think about their vision for the future and reinvent the strategic direction. CEOs who micromanage and want to decide on every operational question risk becoming operational managers rather than true leaders who are focused on developing the strategy. For instance, we were recently told in confidence of a CEO who spent substantive time deciding where the Christmas party should be held. While CEOs who take this approach do not sit well with most organizations, they become a real problem in large, more complex companies where there is a need for agility to grow or transform. The need to move away from the operational becomes even more critical as the life cycle of the tenure moves to the next stage. Boards should support the CEO life cycle by proactively coaching the CEO either directly or with the help of an external mentor.6 Greg PouxGuillaume, CEO of Sulzer, explained: The board should be proactive in supporting the CEO throughout the whole life cycle. All the way from helping with on-boarding

the life cycle of a ceo

to discussing openly about the potential exit. However, in reality it is often difficult to have these conversations because the board at the same time is also evaluating your performance so is therefore both judge and party. So, some boards use external mentors to support the CEO through the life-cycle.

The initial mandate The initial goal of newly appointed CEOs is to achieve the strategic mandate or at least make major progress towards that goal. In Part II, we discussed how CEOs take charge of the organization, build a personal platform, and drive results to do so. We complement this discussion in this section by focusing on performance measurement and dealing with setbacks during this period. CEOs need to be measured Performance measurement is central both to the CEOs in guiding their actions and decisions and to the board in evaluating them. For the CEO, performance measurement can be a tool to identify problems early on so that they can be addressed before they grow to insurmountable challenges. For boards, performance measurement is not only a tool to monitor the CEO but also a mechanism to guide CEO action by aligning financial incentives to the performance measurement. Shareholders and the broader public have become increasingly vocal about the fact that CEO compensation should be linked to corporate performance and, more recently, have been calling for societal impact to be included in performance measurement. This means that boards need to carefully consider what metrics to apply and how to link these measures to compensation. Effective performance measurement needs to apply different metrics at different points in time during the CEO tenure. During the transition period, CEOs and the board monitoring them are well advised to watch for early warning signs in the responses of the organization and stakeholders. Long before financial results are visible, problems can be gauged from leading indicators such as reduced engagement, increased absenteeism, and the departure of leadership talent, as well as increasing negative sentiment among stakeholders outside the organization. Such

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early warning signs should be taken serious by CEOs and the boards monitoring them. Jörg Reinhardt, chairman of the board of pharmaceutical giant Novartis, explained: Already after six months you can start to measure the CEO on soft measures. Take stock if the appointment seems to be going in the right direction. How is the CEO established in the context of the management? Is the CEO recognized as a leader? What influence does the CEO have on the culture? How does the company react? Sometimes you have to take corrective action before the company runs into a catastrophe. Boards that take these signs seriously can take corrective action early on and may be able to avoid a decline in performance. Corrective action may mean mentoring of the new CEO but may also mean an early dismissal before further damage is done. As a transition period comes to an end and CEOs start to drive the changes needed to implement their strategic mandate, related nonfinancial milestones should be increasingly used to follow up on progress. These milestones should be agreed upon between the CEO and the board and should be followed closely. Only after one to two years do financial performance metrics such as growth, profitability, and shareholder value become meaningful in evaluating the performance of the CEO. The only exceptions are situations of financial distress, when boards should focus attention on financial measures before that point in time. Once financial metrics are available, CEO compensation should be linked to a mix of short-term and long-term metrics. However, at this point, CEO compensation should not solely be driven by financial metrics but rather by a mix of financial and nonfinancial measures. These metrics should include long-term goals such as talent development. With the increasing importance of stakeholders other than shareholders, goals should also be linked to corporate social responsibility–related goals like environmental footprint or development of the communities where the organization is active. Finally, strategic impact in setting the company on a solid and sustainable strategic path often has an even longer time horizon. It is not

the life cycle of a ceo

uncommon for meaningful strategic impact to take at least three to five years to materialize. From the outset, boards should link a substantial part of CEO compensation to these long-term goals to ensure a balanced focus of attention. Dealing with setbacks Any CEO would prefer to sail smoothly from the initial appointment all the way to taking charge of the organization and taking action to drive performance. However, leading a company, particularly when dealing with a strategic mandate that involves substantive change, is rarely that smooth. And all too often, as they are driving their strategic mandates, CEOs have no option but to deal with setbacks. How CEOs deal with these setbacks is often decisive for the long-term success of the firm, as well as for the way the organization will perceive its new leader. When Erwin Mayr joined Wieland Werke as CEO, he was faced with the task of transforming a regional firm into a global leader. To do so, Mayr chose the path of growing through acquisitions, and one of his most significant actions was to negotiate the acquisition of the copper business of Aurubis, another German metal company. With this transaction, Wieland Werke would have become Europe’s largest producer of copper products. However, given that both companies were focused on the European market, the transaction received intense scrutiny from the European competition authorities, and after six months of negotiations, the European Commission prohibited the acquisition. At that point, Mayr had to deal with and respond to the first visible and very public setback. Should he have scaled back his ambition? Pursued a less aggressive path for growth? Or doubled down with another acquisition target? How would any of the available options have affected his standing with stakeholders in the firm? Mayr decided to continue along his chosen growth path, this time reconsidering the target location, and only two months later, Wieland Werke announced the acquisition of the US-based Global Brass and Copper in a deal that not only increased the size of Wieland Werke by 50  percent but also fundamentally altered its geographic footprint and brought it closer to global reach. Mayr learned from the first setback and persisted on the chosen path, with the second attempt proving successful.

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Setbacks like the one faced by Erwin Mayr when his initial transaction was prohibited are often inflection points in the tenure of a CEO. CEOs who overcome these initial hurdles create trust within their stakeholder communities, both within and outside the organization. They also build confidence in their ability to accomplish the mandate even in the light of resistance and, as a result, solidify their position. In contrast, CEOs who are less decisive at these inflection points and change direction at each setback give the impression of a sailing boat overtaken by the wind and incapable of winning the race. That will inevitably tarnish their position and quite likely reduce the stakeholders’ support. To convert setbacks into opportunities, CEOs need to be thoughtful about the nature of the set back. Why did we fail? Does the setback reflect something fundamental about challenges with the chosen strategic direction? How will stakeholders inside and outside the organization interpret this setback, and what do we need to do to manage that impact? What do we need to do to overcome the setback? Can we utilize the situation to our advantage? Such questions help the CEO and the organization at large learn from the setback and devise a course of action that not only minimizes the negative impact of the setback but also recognizes and exploits any opportunity in it. Dealing with setbacks, persisting on the chosen path, and gaining trust, must not, however, be confused with persisting on a path that has no chance of working out. Sometimes leaders have a hard time accepting their mistakes and can drive the organization blindly against a wall. Dealing with setbacks needs an element of clear vision and strategy, as well as the humility and capability to accept and openly discuss the reason for a failure. And that is the time when the top management team at large should come closer than ever to the CEO, to discuss the obstacles, the possibility of adjusting the target, and to what extent it is possible to learn from the mistake or try again under different circumstances. If firms do not accept that some sunk costs will remain, and that they will also need to add other costs that will end up being sunk, they will not be able to build the trust they need to grow stronger, and the CEO is likely to find his or her reputation suffers heavily. From the perspective of the board, early setbacks are an opportunity to critically reflect upon the CEO and his or her ability to manage through more challenging times. How the CEO communicates

the life cycle of a ceo

about setback situations with the board is often central to building trust and may be viewed as one of the early indicators of long-term performance.

Beyond the initial mandate When CEOs have achieved the goals of their initial strategic mandate, the board and the CEO need to jointly reconsider the company’s strategic position and direction and set a mandate and direction for the next strategy periods.7 Compared to the initial mandate, which should be defined by the board of directors prior to selecting a new CEO, in setting the second mandate, the sitting CEO often plays a strong role, and the process should be highly interactive, involving the board, the CEO, and the executive team. Reconsidering the company’s strategic position and vision after the initial mandate is an important part of evaluating the sitting CEO. At this point, there is more clarity for the board and the CEO on the development needs of the company and the management team skills needed to steer the new development. The second mandate not only requires a new vision and strategy for the company but often also means that CEOs need to reinvent themselves and possibly leverage different skills than the ones emphasized during the first mandate. For instance, a leader who has held a continuation mandate, and therefore may have focused on strategy implementation and the operational leadership skills required for that, might subsequently be tasked with rethinking the strategic position of the company and the strategic portfolio management skills this involves. In contrast, CEOs who have led a turnaround may suddenly find themselves in a situation in which they need to manage growth and stability. Greg Poux-Guillaume, CEO of Sulzer, explained: The second mandate takes a different skillset. There is a lot more planning and less action. You have to start focusing your energy differently. Less on operational issues and maybe more on strategic or development issues. You spend more time with customers or go to individual countries where there still may be problems. The challenge is that it’s really hard to go from being the cost-cutting leader to being the development leader.

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When the initial mandate has been successfully executed and the next mandate has different requirements, CEOs may have to focus on activities that play less to their strengths and preferences and that they may find frustrating. For example, if a CEO has been hired for their restructuring and tough decision capabilities, they may not be suitable for or even interested in driving digitalization, acquisitions, or a geographical expansion. One CEO whom we interviewed explained to us off the record: I am now three years into the job. The crisis that I  found when I  arrived is under control. My hires have mostly been good ones and they don’t need as much of my input any more. So here I am with all my energy and wonder what to do next. In this situation it would be easy to just shake things up again for the sake of creating some action. While such a reaction is certainly understandable, during this period of reorientation, CEOs need to be thoughtful about their personal interests and what is in the best interest of the companies they lead. Some CEOs are not able to make the transition to a different strategic direction and the changed profile this implies and, as a result, either leave of their own volition for a new challenge or may become ineffective and are eventually dismissed. On the other hand, the longest-tenured CEOs that we have spoken to have in common that they have been able to adapt their profile as needs changed and, over time, have picked up new, often broader topics to concentrate on and build a legacy for, together with the skills to do so. Peter Voser, former CEO of Shell and chairman of ABB, explained: I recommend CEOs to pick two or three topics for which they want to become known for. Not mega-acquisition but something that has longer value. Some CEOs that do that become almost statesmanlike. They focus on the strategic role and choose to pursue a societal theme for which they then become known. Like Paul Polman when he developed Unilever into one of the most sustainability focused corporations in the world. CEOs who make this transition may be able to successfully lead a corporation through multiple mandates.

the life cycle of a ceo

Moving on Even for the most mentally agile CEOs, there are limits to their tenure, and CEOs and the boards hiring them are well advised to be mindful of that at all stages of the CEO life cycle. The CEO position is highly taxing on the individual and often has been described as all consuming.8 Mario Greco, having experience as CEO of Generali and of Zurich Insurance Group, summarized: The first problem about how long you can perform as a CEO is that this is a job that eats you up. You can’t do it forever because your level of energy, your vision, your passion cannot last forever. The second problem is that after a given number of years you have done many things, and most people start becoming defensive about not changing what they did before. And finally, and also that is very human, people become complacent when they have been successful for a long period of time. A CEO who stays firmly in the role and does not move on after a certain number of years will feel less and less comfortable about moving elsewhere and tends to become a liability for the organization. Given these natural limits to the length of tenure, CEOs should start reflecting about potential pathways to moving on early in their tenure. Three scenarios are very common: CEOs becoming serial CEOs, CEOs shifting to alternative careers, and finally founder CEOs letting go of operational responsibility. Appointment as a CEO is often viewed as the crowning moment of a long career, and as a result, the average age of CEOs at large companies is between 46 and 54 years, depending on the country.9 However, there is high variance, with the youngest CEOs at Fortune 500 companies in their 30s,10 and as a result, it is common for CEOs to lead more than one company during their careers. For instance, Christian Klein was appointed CEO of SAP in 2019 at age 39. Similarly, in 2015, Stefan Larsson was appointed CEO of the Ralph Lauren Corporation at age 36. If successful, CEOs may move to lead increasingly larger organizations. Take, for instance, Pekka Lundmark. Following a ten-year career at Nokia and a brief stint as a venture capital investor, he held his first CEO

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position from 2002 to 2004 at Hackman, a Finnish listed company in the homeware and food service industry. In 2004 he moved to KoneCranes, one of the European leaders in cranes and related equipment for process industries, shipyards, ports, and terminals, which he led successfully until 2015. In 2015 he again changed industries when he assumed the president and CEO role at Fortum, Finland’s largest provider of energy-related products. Finally, in what could be described as a return to his origins, he was appointed in 2020 to lead Nokia, the most recognized Finnish brand globally. While the example of Pekka Lundmark may be extreme, today, in up to 20  percent of CEO appointments, the candidate has prior CEO experience.11 Boards bringing in seasoned CEOs hope that experience in the top job will allow them to become effective faster.12 On the other hand, for the serial CEO, moving to a new corporation provides a new set of challenges that may be better aligned with their skills than the old position. In fact, once the original mandate has been completed and the company is in a fundamentally different shape, it may need a CEO with different skills and capabilities. Also, from the CEO’s perspective, once they have successfully completed a mandate, they may be better off moving to the next role, which may provide a motivating new challenge and possibly another upward career step. However, for serial CEOs, the Peter Principle also applies, and examples of failures abound as the case of William Perez at Nike, which we discussed in Chapter 2, exemplifies. When CEOs move across industries or to substantially larger corporations, what they learned in their prior positions may not be applicable, or they may simply not be able to perform in a different company despite the comparable mandate requirements. This is often the case when CEOs apply ready templates from their past experience without having the mental agility needed to understand the specific situation of the new company, leading to poor performance.13 Beyond the CEO career While some CEOs move on to lead other organizations, most leaders either do not have that opportunity or want to step away from full strategic and operational responsibility after having led a company for several years. While the range of possibilities is probably too large to

the life cycle of a ceo

exhaustively cover in this book, a selection of career paths stands out as common choices. One of the most common choices for former CEOs is to continue as board members and possibly chairs of other corporations. For some CEOs, this may be a gradual step toward full retirement or even the possibility of continuing to influence the organization they have led without having to bear the full day-to-day responsibility. Current corporate governance codes advise against CEOs directly becoming board members or even chairs of companies they have previously led, prescribing a cooling-off period of at least one to two years. This view is warranted since examples abound of former CEOs who have continued to meddle in operating decisions well beyond their tenure and, as a result, have left too little room for the new leadership to develop and implement a new direction. These setups weaken the position of the new CEOs and create a vacuum in leadership, as the organization continues looking towards the former CEO for guidance. In some instances, setups of this nature may be a suitable or necessary temporary solution to ensure the continuity of a long-term development path or a mechanism to maintain control: for instance, in a family company. However, boards should be thoughtful about the potential negative long-term implications when leaders are unable to let go and put their ego above the best interests of the company. CEOs may also develop a full-blown second career as board professionals. For instance, following his career as CEO at Swisscom from 1999 to 2006 and TDC Denmark from 2006 to 2008, Jens Alder developed a portfolio of board and chair positions at companies such as CA Inc., Alpiq, and Goldbach Group. One advantage of having former CEOs as professional board members or chairs is that they can leverage their first-hand experience in running an organization as CEO to advise and control the leadership team, with a sufficient distance from day-to-day business. A second advantage is that they have the capability and experience to temporarily step into executive positions when needed. During his tenure as chairman of the board of Alpiq, for example, Alder assumed an interim CEO position in connection with the attempted sale of the group and returned at a later stage for a second time when the sitting CEO was diagnosed with cancer and had to go on extended sick leave.

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Another common career choice for former CEOs is to become an investor in other companies, either as a private individual making investments or more formally by joining an investment company either as a partner or as a strategic advisor. For instance, following his CEO roles at Franz Haniel & Cie. GmbH from 2006 to 2009 and at Metro AG from 2007 until 2011, Eckhard Cordes joined the activist investor Cevian as a partner. Similarly, Andreas Joehle joined the private equity investor Ufenau Partners as a partner. By becoming investors, former CEOs can bring their experience of leading a company into controlling and advising portfolio companies through board involvement and can leverage their industry know-how in investments. Founder CEOs letting go of day-to-day business Another interesting and quite different scenario is when the founder of a start-up that has developed into a larger corporation leaves the role of CEO. Take, for instance, Mark Zuckerberg at Facebook; Warren Buffet at Berkshire Hathaway; and, until recently, Jack Ma at Alibaba. Some founder CEOs step out of CEO responsibility to pursue different interests. However, due to strong emotional attachment and often sizeable ownership, these CEOs are likely to continue to be deeply involved in strategic direction setting as owners and board members or even board chairs and, more often than not, may find it hard to let go. An interesting and well-known example is provided by Jack Ma at Alibaba. As previously described, in 2013, after leading the company for 14 years, Ma tried to step back from day-to-day responsibilities and focus on broader development. Yet it took two CEOs before Ma felt comfortable relinquishing power, either because the new CEO was the right one or because Ma may had slowly learned to take some distance and accept his new role, in everybody’s best interests. Founder CEOs need to critically reflect on how much distance they are willing to take from the company and develop a corporate governance structure they trust sufficiently to run the business without their second-guessing the new leadership. Such processes may take years of gradual detachment, as in the case of Bill Gates, the founder of Microsoft,

the life cycle of a ceo

THE NATURAL CEO LIFE CYCLE The CEO life cycle can be separated into three stages: the initial mandate, one or several additional follow-on mandates, and a stage of moving on from the CEO position either in the company or outside the company. The initial mandate. In addition to the three stages playbook we discussed in earlier chapters, in the initial mandate, performance measurement is central for the CEO and the board. CEOs and boards should develop distinct metrics for different points in time, rather than focusing only on often-lagging financial metrics. Often setbacks are inflection points during the initial mandates, but CEOs can utilize these to build trust and buy-in from stakeholders. Beyond the initial mandate. For CEOs to be successful beyond the initial mandate requires that, together with the board and the top management team, they develop a new vision for the firm and a mandate for themselves. Often this requires that CEOs reinvent themselves and develop new skills over time. However, when a CEO is unable to do so, it is better to move on. Moving on. Given the nature of the CEO job, there are limits to the effective tenure for CEOs. After the CEO role, CEOs may pursue one of three career paths: CEO of another firm, board member of the focal or multiple companies, or investor or advisor in investment firms such as private equity firms.

who in 2006 announced that he would step back from the CEO position to focus more time on his philanthropic interests and would limit his involvement to board membership. Over the following 14 years, Gates gradually reduced his role from chairman to simple board member and only in 2020 announced he would leave the board altogether. For a founder CEO, letting go is always challenging since the company becomes almost like a beloved child, rather than just a valuable employer. However, the most successful and capable founders at some point realize the need to step back and do manage to gradually move on, once they have identified a CEO they can trust.

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Notes 1 Dan Marcec, CEO Tenure Drops to Just Five Years (New York: Equilar, 2018), www.equilar.com/blogs/351-ceo-tenure-drops-to-five-years.html. 2 Thomas Keil, Dovev Lavie, and Stevo Pavicevic, “The Performance Implication of Appointing an External CEO: The Roles of Experience, Misfit, and Negative Sentiment,” working paper, University of Zurich, Zurich, September 2019. 3 Maria Vultaggio, “Long Live Buffett,” Statista, 2020, accessed July  22, 2020, www.statista.com/chart/20919/longest-serving-ceos/. 4 James M. Citrin, Claudius Hildebrand, and Robert J. Stark, “The CEO Life Cycle,” Harvard Business Review 97, no. 6 (November–December 2019). 5 Ibid. 6 Suzanne de Janasz and Maury Peiperl, “Managing Yourself: CEOs Need Mentors Too,” Harvard Business Review 96, no. 4 (2015). 7 The exact division of labor between the executive team, board, and CEO in developing the mandate and strategy beyond the initial mandate differs across legislations. In some legislations (e.g., Switzerland), strategy setting is at least formally the domain of the board of directors. In other legislations (e.g., Germany), strategy is driven by the executive team jointly with the CEO, with the board mostly in an approval function. Finally, in Anglo-Saxon legislations (e.g., the US and the UK), the CEO typically holds most of the power in strategy setting, with the board approving and the executive team executing. 8 Michael Porter and Nitin Nohria, “How CEOs Manage Time,” Harvard Business Review 96, no. 4 (2018). 9 Heidrick  & Struggles, “Route to the Top,” https://heidrick.mediaroom. com/2020-01-09-New-CEO-Report-Global-Route-to-the-Top-2019Examines-the-Changing-Profile-of-CEOs. 10 Joe Myers, “The 5 Youngest CEOs of Fortune 500 Companies,” World Economic Forum, 2016, accessed July  23, 2020, www.weforum.org/ agenda/2016/08/youngest-ceo-fortune-500-companies/; Heidrick  & Struggles, “Route to the Top.” 11 Monika Hamori and Burak Koyuncu, “Experience Matters? The Impact of Prior CEO Experience on Firm Performance,” Human Resource Management 54, no. 1 (2015). 12 Ibid.; Nathan A. Bragaw and Vilmos F. Misangyi, “The Value of CEO Mobility: Contextual Factors That Shape the Impact of Prior CEO Experience on

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Market Performance and CEO Compensation,” Human Resource Management 56, no. 2 (2017). 13 Thomas Keil, Dovev Lavie, and Stevo Pavicevic, Why Do Outside CEOs Underperform? Explaining Performance Heterogeneity Following CEO Succession (Zurich: University of Zurich, 2020); Hamori and Koyuncu, “Experience Matters?.”

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11 SUSTAINING THE SUCCESSION PIPELINE

Since its formation through the merger of Swedish ASEA and Swiss Brown Boveri & Cie in 1987, ABB has been one of the highest-profile Swiss companies. From its inception. ABB has bravely focused on advanced managerial practices and is often credited as the inventor of the matrix structure. Given its focus on management innovation, ABB also runs an advanced personnel development and succession planning system. Peter Voser and the board of directors monitor the development of a large number of high potential leaders across several levels of the organization, providing them with opportunities to build their profiles and leadership capabilities. These potential leaders are benchmarked against a clearly defined and regularly updated future CEO profile, as well as against a roster of potential external candidates, put together by a personnel and leadership advisory company. Despite the strong succession planning system, in 2019 chairman Peter Voser faced a difficult challenge. Under the current CEO, performance

s u staining the s u ccession pipeline

had been stagnating for several years, and investors had increasingly been calling for a departure from the broad conglomerate strategy that ABB had been pursuing. When, in late 2018, the board decided that a change of strategy and transformation were necessary, it was clear that a CEO change would also be needed, given that the current CEO did not match the updated CEO profile for the coming years, which, among other skills, focused mainly on delivering operational performance in a decentralized structure. How should Voser orchestrate this change? Could ABB promote a CEO from within? Could it continue for now with the current CEO and seek a new CEO secretly behind his back? Given the prominence of ABB and the intense investors’ pressure, Voser and the board opted for a radical departure. In April  2019, the CEO left, and Peter Voser stepped in as interim CEO, leading the strategic transformation while at the same time kicking off a global search for a new CEO. Despite the strong management roster at ABB, it became clear that a credible new start would require an external leader. Given the high profile of ABB in its industry, many candidates showed interest, and in August 2019, Björn Rosengren, then CEO of Swedish mining equipment giant Sandvik AB, was appointed, effective March 2020. The example of ABB underlines both the importance and the limits of CEO succession planning. Just as a leader should view the CEO position as one stage in their career, the board needs to think beyond the current CEO, keeping in mind the long-term perspective of the company. In other words, after the appointment of a new CEO and when the company stabilizes in the new path, the board should continue doing everything in its power to help the current CEO succeed while slowly starting to think about a successor.

Developing a succession pipeline In about 60 to 70 percent of CEO successions, depending on the type and size of the organization, the candidate comes from inside the corporation.1 As we outlined in Part I, continuation mandates and evolution mandates, which make up the majority of CEO successions, are best led by an insider. We also discussed why and how exceptional insiders may also succeed in the other two mandates. This highlights that boards are well advised to ensure the organization has processes and systems in

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place to systematically develop an internal set of candidates for the CEO position.2 Time horizons of succession planning Even with a new CEO in place, boards need to have plans for CEO succession ready with different time horizons.3 Ideally, the corporation always needs to have a candidate who can step into the CEO position, at least as an interim, in case the CEO leaves unexpectedly or is incapacitated. Similarly, candidates who have the potential to succeed the CEO in the medium term of three to five years should be developed at top management level: for instance, once the strategic mandate has been achieved or when the current CEO plans to retire. This calls for a great deal of trust between the board and the current CEO. The CEO must be aware of the importance of this task and accept that a succession will be needed at some point. The board should actively develop a roster of high potentials who could step up to become CEO, depending on the situation. The different sets of candidates should be developed in parallel to ultimately meet the needs of the various potential mandates. Talent development and succession planning systems Central to this long-term development is that, from the board down, there is a strong recognition of the importance of talent development and succession planning. Executives with the right skills and capabilities do not just happen, and talent development cannot be relegated to a HR function but needs attention, work, and support from the board and the top management. With the support of the existing CEO and the top management team, the organization needs to develop a comprehensive talent development concept and process that identify high potentials early on and develop their skills across a variety of different assignments and different businesses. Ideally, several of these potential candidates will develop the capabilities currently thought to be needed by a CEO. A comprehensive talent development program is also an important mechanism for creating a diverse set of candidates. In many organizations, top management teams and the high-potentials roster continue to

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be characterized by a lack of diversity in terms of experience, gender, nationality, or sexual orientation. Yet there is abundant research that has established that more diverse management teams perform better,4 and a diverse set of candidates may allow boards to react to a broader set of challenges when selecting an internal candidate. Setting up a talent development program designed to develop CEO candidates is a formidable challenge since it requires foresight on the requirements for future CEOs. Talent development programs also need to balance the need to develop multiple CEO candidates and keep them motivated with making sure the natural competition among candidates doesn’t deteriorate into a political battle that will impact teamwork and cooperation. This implies that the board needs to reflect regularly on the capabilities necessary to lead the company in the future. Peter Voser described some of the considerations at ABB: We regularly review and adapt our future CEO profile. For instance, since we are very active in the digital world, related skills have become more important. And because we are involved in many more partnerships, a future CEO will need a different leadership profile. So some skills come new to the profile, others drop off. The career path of Jonathan Lewis, who we have gotten to know as CEO of Amec Foster Wheeler and Capita, may be an example of this kind of talent development process in action. After initial experience in academia, Lewis joined a software technology company that was eventually acquired by Halliburton, the Texas-based oil and gas services company. At Halliburton, Lewis was identified by the chief operating officer as a high-potential leader and entered Halliburton’s talent development system. In this system, he changed jobs on average every 18 months for a period of about ten years, exposing him to different product lines, global operations, strategy, and marketing, as well as the responsibility for two internal turnarounds. Lewis was part of a pool of five high-potential leaders, with a plan that, from among these leaders, the future CEO of Halliburton would eventually emerge. As time progressed, the group was further reduced, and eventually, Jeffrey A. Miller, who has been described as an intensely execution-focused

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leader,5 best matched the strategic needs of Haliburton at the time and emerged as the winning leader. He was first selected as chief operating officer (2010), then president (2014), and finally CEO (2017). This was not an unusual case, and this information is not often in the news; we learned from our interviews that at this level, internal talent development tends to involve competition among several top candidates, either for a longer period of time, as in the case of Amec Foster Wheeler, or in the period preceding the succession.6 Exposing talent to the board Systematic talent development not only involves varied assignments but should also include an element of regular exposure of the future CEO candidates to the board so that board members can form an unfiltered opinion about those involved. For instance, Peter Voser, who, before taking the chairman role at ABB, had also been CEO of Shell, described the talent development system there: At Shell we identified high potential people very early on and then developed them systematically building their strength and addressing their gaps. The board had full visibility of the candidates and also the candidates had visibility up to board level. They got invited to meet the board and its members. Less formal gatherings were organized so that board members had time to get to know the high potential leaders. Similar systems were described by Hans-Peter Schwald, chairman of Autoneum; Andreas Koopmann, former chairman of Georg Fischer; and Heinrich Fischer, chairman of Hilti. With first-level management, the board needs to interact even more regularly. For instance, at Shell, the top management team had the opportunity to meet regularly with the full board, giving regular presentations about their businesses. They also met selectively with individual board members who had an interest in developing in-depth familiarity with potential internal CEO candidates. Several challenges may emerge in running internal talent development processes such as these. One is that a candidate emerges too early as the

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leading contender. This may lead to complacency on the side of the seemingly chosen crown prince and could demotivate other potential candidates, who may decide to leave. On the other hand, when the competition continues for too long, the risk increases that the preferred candidate may leave the company to pursue outside opportunities. Finally, another challenge is to maintain transparency and a fair process, to avoid potential candidates focusing overly on the competition rather than on working for the best interest of the corporation at large. Instead of cooperating, executives may start to boycott the initiatives of their competitors and backstab each other. To control these challenges requires careful coordination, communication, and oversight by the board and the current CEO, as well as some creativity in framing the situation. For instance, roles should be designed to minimize direct competition, perhaps by preparing different candidates for different potential mandates. Furthermore, the development should focus on preparing candidates with strong ambition for the next step, regardless of whether this step happens inside the company or at another organization. External benchmarking In addition to engaging in systematic development of internal candidates, boards should regularly scan the external market both in the company’s own industry and in closely related industries. This will help them create performance benchmarks and also understand the potential roster of external candidates in case no suitable internal candidates are available when the need for CEO succession arises. Some of the chairs we spoke to went as far as regularly meeting with potential external candidates to get to know them and build an initial relationship, in case they needed to find a CEO relatively fast. Limits to succession planning While in today’s business environment, most public companies engage in some form of talent development and succession planning, our conversations suggested that all too often, these activities tend to remain a theoretical exercise. They take resources when carried out but are quickly forgotten when a real succession event takes place. When there is no

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current need to replace the CEO, boards and management often don’t take succession planning seriously enough and regard it as another box to tick on the corporate governance checklist. Succession planning is also often seen as an exercise for middle management or HR and something the top management team doesn’t need to be part of. As a consequence, often boards realize when they need to replace a CEO that none of the internal candidates in the succession plan really fulfill their requirements, or they do not know the candidates well enough to feel comfortable with such a high-level appointment. As the chair of a large public corporation, who requested to remain anonymous, told us: We had had a series of good years and really did not do a good job with succession planning. It really was the fault of the board of directors since we did not take the issue of succession planning seriously enough. And then when the CEO left we stood without CEO candidate that could take over and steer the company. Nothing is more difficult to bear than a series of good years. Talent development and succession planning may also reach their limits when the need for a transformation or turnaround arises, as the opening example of ABB exemplifies. As discussed in Part I, in these cases external CEOs often become the only option. However, that becomes a major burden for the board as well as for the organization, which may be left in a standstill situation, either because the preparatory work to identify potential candidates is complex and takes time or because of the high risk of identifying a candidate under pressure who subsequently turns out to be unsuitable.

Roles in succession planning To be effective, succession planning requires the smooth cooperation of several constituents throughout the corporation: • •

Board of directors. The ultimate responsibility for succession planning rests with the board of directors. CEO and top management. Because the board does not have responsibility for day-to-day business, it needs the cooperation of the CEO and the top management team to execute systematic talent development.

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•

Consultants. External consultants (executive advisory and headhunting firms) play a central role in supporting both the board and executive management. Board of directors

The role of the board in succession planning is to lead the process, encouraging the executive management team to engage in systematic talent development and regular interaction with high potentials. The central role sits with the chair, or the lead independent director if the chair is an insider (for instance, CEO), as well as with the president of the nomination committee and the nomination committee at large. The chair plays a pivotal role, given that he or she is more closely involved with daily business than the other board members and often in a better position to observe internal talent. At the same time, current governance codes often suggest that board chairs should not preside over nomination committees, which means the president of the nomination committee plays an important role in driving regular succession planning activities. Finally, the involvement of a strong nomination committee7 is important to ensure that individuals on the board (in particular the chair or the president of the nomination committee) do not dominate succession planning or take shortcuts at any stages in succession processes. CEO and top management The role of the CEO and top management team is to set up talent development in such a way that it prepares future executive team members who have the potential to become CEO. With respect to the CEO, the board needs to be aware of the potential conflicts of interest. A weak sitting CEO may view a strong talent bench as a threat and therefore may be reluctant to develop strong executives who could replace him or her on short notice. In the words of Mario Greco, CEO of Zurich Insurance Group: Often CEOs play tricks with the board in portraying talents as worse than they are because they think that the worse people around them are the longer they can stay. Some even go so far to eliminate any potential competition from inside.

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This potential conflict of interest can be avoided if the board selects and subsequently monitors a strong and open-minded CEO.8 An incentive structure that makes talent development on all levels central to the CEO’s performance scorecard and financial incentives is also recommended. The closer the time for a potential succession comes, the more control the board needs to exert.9 External consultants Increasingly, boards and management teams rely on leadership advisory companies to support talent development, both within and outside of specific search assignments. These companies can play an important role in objectively assessing talent and in providing external benchmarks. In working with external consultants in talent development and succession planning, boards need to be mindful of several challenges. First, boards need to weigh up the trade-offs of developing a close relationship with a single advisory company. Developing an ongoing relationship has the advantage that the advisor develops an in-depth understanding of the company’s culture and can therefore provide more tailored assessments. However, such relationships can easily degenerate into dependence, to the point where the advisors, rather than the board, may end up driving succession planning processes. Boards therefore need to ensure that they continue to lead succession planning processes and use advisors sparingly and strategically.

Identifying the right moment to change the CEO One of the critical moments for the board within succession planning is the decision to start seeking a new CEO. Ideally, CEO succession is started in mutual agreement with the sitting CEO and in line with a long-term schedule that allows for extensive search and decision-making and gives potential candidates sufficient time for transition. However, often succession arises out of frustration with the performance of the current CEO or from a desire to redirect the organization. Given that CEO changes are pivotal moments for the organization and tend to be emotionally taxing for all parties involved, our findings suggest that boards tend to create unnecessary time pressure by

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making decisions too late, when the performance of the company has already deteriorated substantially, or environmental change has already weakened the strategic position. All too often, financial results are lagging indicators that reflect problems that may have been perpetuating for years. Boards are advised to proactively look out for leading indicators that may signal problems long before financial performance declines and to keep in mind that such indicators are often non-financial “soft” indicators. Gilbert Achermann, former CEO of Straumann Group and current multi-board member, explained some soft indicators: You need to look at the soft facts. What’s the personality, values, attitude and mindset of the CEO. Is the CEO willing to have strong people around? What kind of a culture does the CEO create? Are the decisions the CEO makes really entrepreneurial and sustainable? In the end all CEOs are to some degree narcissists, alpha animals and as a board you need to watch out what kind of an environment they create. The challenge with soft indicators is that they put boards in the difficult position of having to consider changing a CEO even when financial performance is still acceptable. As a consequence, boards are often reluctant to act on these indicators. However, once such soft indicators indicate problems, the board needs to start inquiring more. For example, the communication behavior of the CEO may provide strong signals about potential problems, or a CEO who is too much into details and, in the end, blocks or delays actions with his or her constant intrusive behavior may suggest a leadership problem. Severin Schwan, CEO of Roche and lead independent director of Credit Suisse, explained: The CEO’s communication behavior tells you a lot. When the CEO no longer answers openly to our questions, my alarm bells go on. If the CEO avoids to discuss failures or controversial matters, gives vague answers or is holding something back, trust is broken. Once that happens, it is only a question of time that some change needs to occur.

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Succession planning in different types of companies While succession planning is important in all types of organizations, some of the challenges differ across company types. Specifically, there are unique succession planning challenges for smaller companies, founderled companies, and family-controlled companies. Smaller companies Establishing talent development systems requires a certain minimum size for the company. Smaller companies, or companies that may be focused on a single business, often find it more difficult to give rising talent the breadth of opportunity they need to develop general management capabilities. For instance, in a company focusing on a single business, it may be difficult if not close to impossible to develop the capabilities needed to run a complete business with full profit-and-loss responsibility. Similarly, smaller companies may find it difficult to rotate emerging leaders across different functions, given the limited number of opportunities arising from turnover. Smaller companies may be well advised to view leaders temporarily leaving to join other companies as part of their talent development. They should proactively maintain relationships with managers after they leave so that they have the opportunity to bring them back in more senior positions at a later stage, when the leader has gained a broader skill set outside the company. A former chair of several publicly listed companies explained: If you have really strong people that you would want to develop you may consider to have them go to another company for some years. Quite deliberately almost like on an exchange, to learn something new? And then you bring them back later. For instance, when Stefano Cao was appointed CEO of SAIPEM, the Italian oil and gas engineering services company, it marked a return for him to a company he had spent most of his career at. Founder-led companies Founder-led companies tend to present slightly different challenges related to succession because, most of the time, it is the CEO who makes the

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THE TOUGHEST DECISION: WHEN SHOULD THE BOARD CHANGE THE CEO? When financial results are poor, the firm may find itself in a very difficult overall situation, and extreme measures have to be taken. Proactive and capable boards should be able to identify the often subtle non-financial signals that precede a decline in financial results and strategic position. It is important for them to recognize that temporary external shocks, such as pandemics (e.g., COVID-19), are not necessarily the reason for an extreme situation. Solid organizations can absorb external shocks for a temporary period while declining organizations with poor leadership often use external shocks as excuses for a long-standing intrinsic problem. There are some early signs that boards can look out for:

Firm-level warning signals • • • • •

Turnover among top talent; Customer complaints; Increased employee absenteeism; Decreased employee engagement; and Gossip among the middle management.

CEO behavioral warning signals • • •

CEO removes vocal top management members; CEO communicates less openly or operates behind closed doors; CEO is defensive in responding to board questions or avoids openly reaching out to the board; and • Top management team (TMT) members are not aligned, fight for power and attention, and backstab each other. Boards should actively look out for these and similar signals and take corrective action and possibly change the CEO before long-term damage is done.

decision, choosing the successor almost alone. As a result, the incoming CEO may have difficulty stepping out of the shadow of the founder. As the failed succession at Alibaba from Jack Ma to Jonathan Lu discussed in Chapter 2 suggests, highly successful founders often find it difficult to let go of control and to allow strong personalities who may eventually

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replace them as CEO to grow alongside them. To address this issue, some founders have brought in experienced leaders early on and allowed them to work alongside them and develop the necessary trust from the outset. For instance, in 2001, Larry Page and Sergey Brin, the founders of Google, hired Eric Schmidt, a highly experienced software executive, to not only serve as CEO but also to professionalize the organization and key processes from an early stage, thereby making Google less dependent on the founder personalities. Family-owned companies A related set of problems often occurs in family-controlled companies, where a key challenge is to balance the business interests of the company with the socio-emotional interests of the controlling family. While it is in the business interests of the company to establish a process to identify a strong future leader, the socio-emotional interests of the controlling family often result in the selection of candidates that are not necessarily ideal for the company.10 For instance, family owners often prefer the promotion of a family member to CEO, even if that individual may not be the strongest candidate to lead the company.11 Internal family political feuds might also influence selection of the CEO. For instance, when Ratan Tata stepped back from the chairmanship of Tata Sons, one of India’s largest conglomerates, he was succeeded by Cyrus Mistry, a member of one of the other families holding substantial ownership in the company. At the time of the succession, the Tata group was facing difficulties in a number of its businesses, and the relationship between Ratan Tata and Cyrus Mistry had rapidly deteriorated, with the conflict between them increasingly affecting the company. As a result, three years into Cyrus Mistry’s tenure, he was forced to resign from Tata Sons.12 In other instances, a preference for continuing to indirectly control the company through a leader who is known to and trusted by the controlling family may drive succession planning. Such a leader may not necessarily be the strongest candidate available but is believed to act in the interest of the controlling family. To avoid the socio-emotional interests of the controlling family ending up harming business interests and leading to inferior succession decisions,

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family-controlled companies and their boards are well advised to institute strong governance structures that separate internal family and internal company matters to the widest extent possible.

Succeeding at talent development and CEO succession In thinking about the concept of talent development and succession in the long run, it is important to recognize a fundamental trade-off that boards need to acknowledge. Throughout the book, we have repeatedly highlighted the challenge that external candidates are often difficult to select, due to the limited information that boards have on them compared to internal candidates whose capabilities, knowledge, and fit with the organization are known. However, this seemingly higher risk needs to be weighed against two fundamental issues with internal talent development. First, organizations often face novel challenges that internal talent development has not anticipated or, by nature, cannot anticipate. In other words, developing CEO candidates for the future requires that someone in the organization is able to accurately predict that future over considerable time periods – a task that would be beyond the capabilities of even the most forward-thinking leaders. Second, setting up internal talent development always requires either appointing an internal candidate relatively early or putting several internal candidates in competition. While the first solution may lead to complacency on the part of the chosen candidate and demotivate the other candidates from the outset, the second solution very easily destroys any form of teamwork among those vying for the CEO position and may lead to highly destructive political behavior. Balancing these forces is challenging at best and has a high chance of failure. To be successful and manage these challenges calls for substantive effort from boards over longer periods of time. It requires boards to combine the possibility of external succession with intense efforts at internal talent development, in recognition of the fact that developing and choosing the next CEO is a long-term project that will take time and effort and may take the board out of its comfort zone. Also, board members tend to be well connected and may be aware of other possible opportunities outside their organization. They should make it their personal objective to support those who were not selected and to help them find an alternative

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growth path inside or outside the organization. If the board has invested time in developing a few candidates, all of them should be viewed for a potential CEO appointment and should not be let down. This approach, if communicated early enough, is likely to create a healthier environment for the succession project and a better overall outcome.

Notes 1 Thomas Keil, Dovev Lavie, and Stevo Pavicevic, Why Do Outside CEOs Underperform? Explaining Performance Heterogeneity Following CEO Succession (Zurich: University of Zurich, 2020). 2 Dennis C. Carey and Dayton Ogden, CEO Succession (Oxford: Oxford University Press, 2000); Noel M. Tichy, Succession (New York: Portfolio, Penguin, 2014); Victoria Luby and Jain Stevenson, “7 Tenets of a Good CEO Succession Process,” Harvard Business Review (2016), accessed June  1, 2020, https://hbr.org/2016/12/7-tenets-of-a-good-ceo-succession-process. 3 Jorma Eloranta, Board of Directors  – Focus on Value Creation (Helsinki: Otava, 2019). 4 See, for instance, Bo Bernhard Nielsen and Sabina Nielsen, “Top Management Team Nationality Diversity and Firm Performance: A  Multilevel Study,” Strategic Management Journal 34, no. 3 (2013), Quinetta Roberson, Oscar Holmes IV, and Jamie L. Perry, “Transforming Research on Diversity and Firm Performance: A Dynamic Capabilities Perspective,” Academy of Management Annals 11, no. 1 (2017), David Rock and Heidi Grant, “Why Diverse Teams Are Smarter,” Diversity: Harvard Business Review (November 4, 2016), https://hbsp.harvard.edu/product/H038YZ-PDF-ENG. 5 Jordan Blum, “Jeff Miller, Named Haliburton CEO, Has Experience Taking the Reins,” Houston Chronicle (Houston, TX), May 19, 2017, www.houston chronicle.com/business/energy/article/Jeff-Miller-named-Halliburton-CEOhas-11159240.php/. 6 Dennis C. Carey, Dan Phelan, and Michael Useem, “Picking the Right Insider for CEO Succession,” Harvard Business Review 87, no. 1 (January 2009). 7 The composition of nominating committees differs across legislations. Nomination committees are often led by the chair of the board (though some legislations explicitly exclude the chair from chairing or even being a member of the nominating committee) or the lead independent director if the chairman is an insider. Other members of the nominating committee tend to be recruited from among the independent directors. Its role is to

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seek out candidates for important positions in the firm: in particular, board members, the CEO, and top management team members. 8 Kenneth W. Freeman, “The CEO’s Real Legacy,” Harvard Business Review 82, no. 11 (2004). 9 Reshmi Paul, “Beware the ‘Smooth’ CEO Succession,” Harvard Business Review (2014), accessed July  25, 2020, https://hbr.org/2014/06/ beware-the-smooth-ceo-succession. 10 Morten Bennedsen, Kasper Meisner Nielsen, Francisco Perez-Gonzalez, and Daniel Wolfenzon, “Inside the Family Firm: The Role of Families in Succession Decisions and Performance,” Quarterly Journal of Economics 122, no. 2 (May 2007). 11 Ibid. 12 Dnyanesh Jathar and Maijo Abraham, “Why Was Cyrus Mistry Ousted as Tata Sons Chairman in 2016?” The Week, December 18, 2019, www.theweek. in/news/biz-tech/2019/12/18/replug-why-was-cyrus-mistry-ousted-as-tatasons-chairman-2016.html.

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12 THE CEO OF 2030

We started with the observation that CEO succession is a pivotal moment for every organization. It is difficult both for boards that need to make high-impact personnel decisions, often with limited information, and for CEO candidates who are expected to drive highly challenging mandates in organizations they are often not familiar with. CEO succession is both high impact and nerve wracking, and if it is to be successful, it must be carefully planned and executed. We have presented ideas, frameworks, and practical tools that have the potential to improve CEO succession practices, on the side of both the board and the new CEO. So what should be the priorities for boards and new CEOs who want to improve the likelihood of success? Let’s take a look forward into areas that are relatively underdeveloped and could become the future qualifiers in CEO succession. While each succession has its own unique traits and requirements, four areas require more substantive development across all new appoint­ ments:

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• • • •

implementing best practice, tools, and frameworks; being genuinely open minded toward a more diverse set of candidates; looking beyond linear career paths for the candidates of tomorrow; and utilizing novel technology and analytical processes.

Implementing best practice Much of what we have presented is about using systematic processes and practices. Despite the hard work that boards put into the selection of the right CEO and the long hours CEOs spend driving the companies they have been selected to lead, we see failures, both personal and at the company level, resulting in billions lost in all industries. This raises the question of the true potential of the tools and frameworks we have presented throughout this book. Off the record, many of the chairs, CEOs, executives, and headhunters we talked to admitted that the real selection process still continues to be ad hoc and independent of talent development processes. Most importantly, it is still often based on personal opinions and the charisma of the candidate and has a limited connection to their real capabilities or potential. As one chair told us in confidence, “You have the talent development and succession plans but when you are really looking for a new CEO it is suddenly a different ball game.” As long as the board and top management fail to take talent development, succession planning, and CEO selection seriously, the results of CEO successions will continue to be a game of hit and miss. CEOs who take on their first CEO position will also benefit from applying a more systematic approach. After all, becoming a CEO is meant to crown a typically already above-average career. A large share of people who make it to CEO are ambitious and confident leaders who have mostly experienced success in their careers. Often, these leaders think they have developed an approach to management that holds the secret to success – that they have the Midas touch. Yet becoming CEO is a big step up in responsibility, creates challenges that cannot be anticipated based on their prior positions, and tends to make the candidate much more visible to the external world than ever before. CEOs are well advised to have the humility to consider and draw upon all the tools available to ease this challenging step in their careers and to make it more likely they will be successful. Utilizing the ideas and frameworks we have presented, based

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on the insights and experiences of many CEOs and chairs, is a step in the right direction. Too often we know the theory but do not turn it into practice, which is a major mistake and a recipe for failure.

Developing and being open to a truly diverse set of candidates Diversity is much higher on the agenda than it has ever been in the past, but many companies are still far from achieving it, particularly at the leadership level. Most CEOs continue to be “compliant with the look and feel” of the country where the organization is located. We know from extensive published research that diversity boosts performance, especially for firms that compete on the global stage. One of the biggest challenges for boards and new CEOs in the years to come will be to find ways to truly embrace diversity at the top, whether that is in terms of background, personal characteristics, or experience. It is still not unusual to see a Western world top management team that is predominantly male, white, and mostly drawn from the same nationality. Even when diversity is preached and headhunters are, for example, specifically told to include diverse candidates in the final pool, the reality or endgame is often sadly predictable. Many top candidates are discarded because they do not speak the local language, have less experience with the local laws, may not be on the headhunter’s preferred list, or simply come across very differently from the typical mainstream candidate. As many psychology studies show, we often prefer to work and deal with people who look and think as we do or are part of our circles. That is an incredible waste of talent and makes organizations at large lose faith in leaders who talk diversity but do not practice it. Embracing diversity in internal talent development and external talent acquisition is challenging. Diverse teams are often harder to manage, real inclusion is something we are not used to seeing or dealing with, and differences in viewpoints are often uncomfortable for many leaders. But building a diverse talent pool all the way to the top management team allows organizations to drive challenging strategic mandates in complex and fast-changing business environments. Equally, boards will have a pool of candidates to choose from for their next CEO who are likely to be able to respond to a broader range of strategic mandates.

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To achieve diversity, talent development needs to move away from diversity as a fig leaf that often only adds under-represented groups in order to cover external requirements. Boards need to take the challenge of identifying and systematically developing diverse talent seriously, taking differing needs into consideration and acknowledging that existing power structures often create disadvantages that need to be dealt with. No one is interested in hearing if there were diverse candidates on the final shortlist. What everybody watches is who is appointed, and organizations that choose a diverse candidate tend to get considerable positive press to begin with and, as a result, will be better able to attract employees who want to work for meritocratic organizations and have an inclination to work professionally. Disruptors, such as the COVID-19 pandemic, can become powerful enablers of diversity. Organizations are realizing, for example, that the geographical location of candidates is less relevant than it used to be. Mothers and fathers are experiencing comparable challenges with small children invading important virtual meetings, and overall, technology is removing many of the barriers that used to be discriminating factors. It remains to be seen if boards and CEOs will draw the right conclusions from this forced experiment and adjust their future behavior.

Looking beyond linear career paths Another important aspect to consider when selecting candidates relates to the limits of traditional profiles. What got us here won’t get us there. And that holds true for the way boards and organizations approach the ever-accelerating war for talent. Companies face a business environment that is more complex and dynamic than ever. Just consider, for instance, the implications for the strategies and operations of global companies of the COVID-19 pandemic or the shift from several decades of globalization to the new protectionism and trade wars. Against this backdrop, organizations need to build resilience and the ability to radically rethink. On a wider scale, the requirements for – and of – CEOs have changed. Where in the past it was enough for a CEO to deliver financial performance focusing on operational and strategic decision-making, CEOs play an increasingly important role as company spokespersons on such

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issues as the company’s societal impact. To move the company forward on such issues requires leadership that engages and empowers the employees throughout the company. To motivate a company full of millennials and beyond requires a CEO not only able to project a vision that reflects a convincing organizational purpose but also able to lead from within the organization rather than from the top. To learn the skills to do so, CEOs require experiences beyond traditional corporate assignments. At the same time, most CEO candidates continue to have rather linear career progression, heading from success to success, with early career steps setting them on the path to the CEO suite. Often, we see CVs in which candidates have moved in rapid succession from assignment to assignment within the same organization, without ever having to show true impact. We need to ask if these candidates will have the resilience and mental flexibility to lead their organizations through downturns and radically shifting circumstances towards the new reality. Boards can learn from entrepreneurs. Some of the most successful entrepreneurs have experienced multiple failures in their careers or have pursued non-linear career paths that would never have led them to a senior position on the corporate ladder. Take Jack Ma. After training as an English teacher, he initially taught English at the college level. In his early career, he faced difficulties being accepted at universities; most notably, Harvard declined his application, and so did many corporate employers. It took him three years to pass the admission tests for teacher’s college, and he was then rejected for job after job he applied for.1 Despite these setbacks, he went on to found one of the most successful internet companies of all time – Alibaba. Similarly, Steve Jobs was ousted from the CEO position at Apple and spent several years growing two other ventures, Pixar and Next, before the board asked him back to Apple. He reflected on his forced time away from the company as an asset: I didn’t see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.2

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What we can learn from this and other examples is that, of course, you do want a candidate who has great potential to be successful. But does past success guarantee future performance? When performance means much more than financial numbers and needs to be long term and sustainable, boards should beware of CEO candidates who have never experienced failure and seem to have optimized their own careers rather than their impact in the companies they have worked for, let alone broader society. This topic is becoming even more prevalent with the millennial generation and beyond. Often, highly talented employees are no longer interested in pursuing a linear progression of assignments set by the corporation but prefer to work for different companies and engage in a variety of assignments, thereby not only learning more broadly but also becoming accustomed to the notion of reinventing themselves and rapidly learning from scratch. New generations also like to take some time off, whether to travel, focus for a period on the family, or enrich themselves in alternative ways. This means that the traditional HR questions on what a candidate did during a year-long gap in their CV or why they moved from one company to another are no longer relevant and show a rather old-fashioned HR, which may discredit the organization itself. This is especially true of the CEO role, for which well-rounded candidates with a more complete vision of life in the office and outside are likely to be more desirable. Boards are well advised to take non-linear career paths seriously at the highest level because it is the flexibility and resilience learned from these careers that are increasingly emerging as the hallmark of successful companies. Instead, the focus on and appreciation of linear careers may carry the risk of making boards and other leaders discard candidates who are more flexible and resilient, exactly because their backgrounds are less “compliant” with the mainstream thinking and because their careers have been less linear.

Driving analytical processes through technology A final area of development is making selection processes more analytical and more reliant on novel technology. Over recent years, companies have invested heavily in making personnel selection processes at lower levels in the organization more analytical and less biased by using technology

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in the search and evaluation of candidates. Digital technologies, in particular artificial intelligence, have become important tools for identifying candidates in a more objective manner and making better decisions. In contrast, CEO selection decisions often still rely largely on intuition and social networks. Given their backgrounds, board members often pride themselves on their ability to identify and select candidates based on their long-standing experience and superior intuition. While we are the first to admit that CEO selection is a highly complex choice, and experience and intuition have their place, we believe this needs to be complemented by advanced analytics and supported by digital technology. Our research suggests that CEO choices are still too often heavily influenced by personal liking, the charisma of a candidate, or the limited preferences of some headhunters or board chairs. Board members too often (unknowingly) choose a candidate who strikes them as similar to themselves or who has personal interests in common, rather than basing their decision on the needs of the company and the potential of the candidate. These prevailing habits are inherently backward looking and not designed to identify fitness for the future of the company. We believe that boards also need to more strongly embrace technology when searching for and evaluating candidates. Given the widespread availability of personal information online, technology can help build detailed profiles of available candidates and their behavioral tendencies and help those recruiting develop an understanding of a candidate’s values and personality that is far better than any specific psychometric tool could do since it allows them to capture the candidate’s behavior over longer periods of time in real-world situations. While CEO candidates tend to be able to talk a good game when asked about many current topics such as environmental impact, purpose, or diversity, digital technology makes it possible to track whether such statements are backed by systematic actions or rather are only responses of a highly intelligent individual who knows what the interviewer expects.3 Such information should also be used more extensively at the board level to ensure the business is making the best possible choice in what will always be a complex and uncertain situation. Because, after all, choosing a new CEO is possibly the most important decision the board is likely to make for years to come.

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Notes 1 Rebecca Fannin, “How I  Did It: Jack Ma, Alibaba.Com,” Inc., January  1, 2008. 2 Nina Zipkin, “Stories of Rejection from 8 of the World’s Most Successful Entrepreneurs and Leaders,” Entrepreneur, March 30, 2018. 3 We acknowledge that there is an intense legal and societal debate about what information third parties can scrape from social media and other information sources. However, many such problems can be circumvented by asking for explicit permission to collect detailed data as part of being included in the CEO search process.

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INDEX

Note: Page numbers in italics indicate a figure and page numbers in bold indicate a table on the corresponding page. ABB 42, 49, 154, 160, 168, 169, 171 – 2, 174 accountability 108, 115, 120 Achermann, Gilbert 177 actions: accountability for 115, 120; corrective 144; daily 120; dramatic 89; early 90, 99, 103, 106, 108; focus of 78; initial 7, 99, 143; premature 3; priority of 130; radical 119; right 79; sequence of 88, 142, 145; short-term 78, 81; situationally driven 106; systematic 190; timing of 78; type of 78; see also symbolic actions Alder, Jens 61, 76, 80, 163 Algeco Scotsman 85 – 6 Alibaba 4, 42, 164 – 5 , 179, 188 Alphabet 36 Alpiq 61, 76, 163 Amec Foster Wheeler 23, 71 – 3 , 76, 78, 100, 105, 107, 136, 172 analytics: in selection 31, 45, 185, 190 – 1

analyzing the situation 78, 114 Andrier, Gilles 8 Android 36, 129 Apotheker, Leo 4, 16 Apple 3, 112, 129, 188 artificial intelligence 21, 57, 190 authenticity 65, 103, 107, 130, 136 – 7, 147n6 Ballmer, Steve 3, 21, 63 Barnes and Noble 4 being authentic 103, 147n6 Berkshire Hathaway 152, 164 Bilfinger 4, 26, 153 board members 9, 16, 29 – 31, 91 – 2, 104, 105, 152, 163 – 5 , 172 – 3 , 175, 177, 181, 183n7, 190 board relationships: with CEO 92, 104, 108, 118, 122, 153 – 7 board roles 85, 92, 175; in defining the mandate 15 – 32, 35 – 6, 40 – 2, 45, 46 – 8, 57 – 9, 71, 72 – 3 , 78,

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165; in onboarding 92, 123; in selection process 6, 15 – 16, 28 – 32, 37 – 40, 43, 47, 50, 64, 65, 80 – 1, 159, 162 – 3 , 185, 189 – 9 0; in succession planning 8 – 9, 168 – 82, 185 boards of directors 4, 6 – 9, 16, 57, 61, 123, 125, 129, 139, 144, 159, 166n7, 168, 174 – 5 , 184 – 90 Boire, Ron 4 Brin, Sergey 35, 180 Buffet, Warren 152, 164 building networks 90, 112, 114, 122 – 3 Bulcke, Paul 2, 48 – 9 business model 21, 25, 48, 57 – 8, 60, 63 buy-in 132 – 3 , 135, 165 Cadonau, Riet 22, 58, 64 candidate assessment 18, 24, 50, 54, 175 candidates: external 8, 27 – 8, 34, 37 – 9, 41 – 3 , 48, 50 – 1, 61, 98, 119, 168 – 9, 173, 181; internal 2, 8, 19, 34 – 5 , 37 – 9, 41, 44, 47 – 51, 60 – 2, 63, 74 – 6, 170 – 1, 173 – 4 , 181; outside 50; see also candidate assessment Cao, Stefano 68, 178 Capita 75, 105 – 6, 119, 136, 171 career 2, 4, 7 – 8, 39, 45, 46, 57 – 8, 59, 61 – 2, 73, 76, 86, 93, 138, 152, 162 – 5 , 169, 178, 185, 187 – 9; see also career paths career paths 76, 163, 165, 174, 185, 187; linear 185, 187; non-linear 188, 189 centralization 68 CEO: appointment as signal 54, 61, 63, 66, 73, 75; archetypes 17, 139; blog 121, 132; characteristics 6, 20, 41, 51, 64, 76, 136, 186; ego 113, 163; evaluation 23, 39, 41, 190; external 19 – 20, 45, 48, 49 – 52, 60,

62, 66 – 7, 73 – 5 , 96, 98, 100, 131, 174; failure 3 – 4, 7, 23, 27, 66, 69, 87, 99, 107, 158 – 9, 162, 177, 181, 185, 188 – 9; ghost 130; internal 43, 48, 51, 63, 67, 75 – 6, 98, 172; isolation 69, 92, 112, 116, 119, 123; life cycle 7, 9, 152 – 5 , 161, 165; longterm 48; new 1 – 7, 9, 16, 18 – 20, 24, 26, 34, 36, 39, 46 – 7, 49, 53, 54, 61, 75, 81, 85 – 92, 94 – 8, 101, 106 – 8, 110, 112, 114 – 18, 120, 122, 123 – 4, 128 – 35, 137 – 40, 142 – 3, 145, 151, 156, 159, 163 – 4, 169 – 70, 176 – 7, 184 – 6, 190; personality(ies) 24, 27, 31, 36, 66, 77, 80, 140, 147n6, 177, 179, 190; as portfolio manager 68; profiles 6, 9, 15 – 21, 23 – 9, 40, 43, 47 – 9, 51, 58, 64, 67, 76 – 7, 79, 86, 168, 169, 171; relationship with board 92, 104, 108, 116, 122 – 3, 152 – 7; retirement 35 – 7; searches 30 – 1, 191n3; serial 8, 64, 161; tenure 2, 4, 7 – 8, 41, 53, 62, 65, 68, 75, 85, 87, 89, 91, 92, 95, 98, 101, 106 – 7, 109 – 10, 114, 140, 145 – 6, 151 – 5 , 158, 160 – 1, 163, 165, 180; Time Horizon 18, 170; transition 3; work of new 5 – 7, 9, 87, 93n1; see also CEO change; CEO departure; CEO playbook; CEO profile; CEO role; CEO selection CEO change: reason for 22, 61, 66, 73, 169 CEO departure 153; unexpected 35, 37 CEO mandates 5, 16 – 17, 18, 21, 28, 40, 65, 97, 142 CEO playbook 9; see also new CEO playbook CEO profile 24, 29, 47, 51, 64, 77, 79, 168 – 72 CEO role 8, 17, 35, 39, 42, 63, 77, 86, 88, 91 – 2, 100 – 1, 104, 118, 136, 162, 164 – 5 , 189; versus executive role 36, 37 – 8, 51, 89, 96, 100, 104, 117, 122, 163

INDE X

CEO selection 185, 190; preparing for 15 – 32; process 28 – 32, 99 CEO succession 3 – 7, 9, 16, 17, 28, 33n10, 35, 38, 40, 47 – 8, 55, 66, 169 – 70, 173, 176, 181 – 2, 184 – 5 Cevian 8, 39, 98, 164 chair/chairman 2, 5 – 6, 16 – 17, 24, 28 – 32, 34 – 7, 39 – 4 4, 48 – 52, 61 – 2, 66, 74, 92, 94, 104, 122 – 3 , 126n6, 154, 156, 160, 163, 165, 168, 172 – 5 , 178, 180, 182n7, 185; coaching CEO 112, 123, 154; role of 35 – 6, 44, 172 change: agenda 91, 142; CEO 1, 4, 6, 22, 61, 66, 73, 169, 176, 179; culture/ cultural 3, 52, 59, 67 – 8, 90; dynamic 143; efforts 90, 112; environmental 22 – 3, 56, 177; fundamental 19, 55, 57 – 8, 67, 109, 115; industry 25, 57 – 9; initiative 135, 143; in leadership 100; in management team 115, 118; market 108, 138; momentum 130; movement for 134 – 5, 145; operational 20, 23; organizational 40, 64, 67 – 8, 73, 91, 109, 129, 138, 141; pace of 17, 22 – 3, 88, 97, 118, 130 – 1, 138 – 42, 145; personnel 60, 140; portfolio 97; process 135; readiness 139; regulatory 21, 57; signaling of 116, 117; strategic 16, 18 – 20, 18, 23, 34 – 5, 41, 43, 45 – 6, 129, 142, 169; sequence of 130; substantive 157; sustainable 55, 135; technological 21, 57; see also change agents; change capacity; change template change agents 121, 124, 134 – 5, 142, 145 change capacity 91, 130, 140, 142 – 3, 145 change template 77, 79 – 80, 139, 1 45, 162 chief transformation officer 141 Clariant 42, 51 communication: behavior 177; external 133; initial 99, 101 – 2; informal 141; internal 133; network

129; open 102, 133, 137; strategy 131 – 3; tele- 47, 57, 58, 64, 91, 129, 131; transparent 133 company situation 77, 138 compassion 65, 130, 136, 138, 145 Constellium 86, 102, 108 consultants 27, 175 – 6; see also headhunters continuation 34 – 43; see also continuation mandates continuation mandates 18 – 19, 18, 23, 35 – 42, 46, 50, 54 – 5 , 64 – 5 , 68, 160, 169 Cordes, Eckhard 8, 39, 98, 164 core business 3, 36, 56, 62, 89, 109, 119; non- 76 core team 88, 114 – 15, 20 corporate politics 141 corporate program offices 141 COVID-19 pandemic 3, 121, 124, 179, 187 Credit Suisse 177 Culp, Larry, Jr. 4 cultural fit 24, 27 culture/cultural change 3, 52, 59, 67 – 8, 90 Danone 2 decentralization 62, 68, 169 deep networks 90, 114, 122 delegation 99, 154 departure 20 – 1, 26, 46, 49, 52, 56, 60, 62, 65, 67, 108, 114, 117, 131, 136, 155, 169; CEO 37, 151, 153 Diaz, Julian 8 digitalization 57, 117, 160 digital technologies 57, 190 Dimon, Jamie 3, 112 direction 1, 6, 16 – 17, 23 – 4 , 35, 40, 45, 46, 48, 51 – 2, 54 – 5 , 58, 60, 68, 73, 89, 96, 99, 104, 109, 114, 117, 122, 131, 133, 135, 156, 158, 163, 186; strategic 5, 18 – 19, 35 – 8, 40 – 1, 43, 45 – 7, 51 – 2, 55, 58, 60 – 1, 67, 73, 129, 154, 158 – 60, 164

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direct reports 95, 121, 123, 125 disruptive innovations 57 dissent: allowing 115, 120 diversification 42, 61, 76 – 7 diversity 54, 107, 124, 171, 186 – 7, 190 DSM 91, 144 due diligence 100, 152 Dufry 8 early wins 65, 143 EE 64, 91, 131 Elop, Stephen 128, 129 Emotional Intelligence 119 employee perception 130, 153, 157 employees 1, 3, 52, 56, 68, 73, 98, 101 – 6, 108, 117, 121, 124, 128 – 30, 133, 136 – 8, 147n6, 187 – 9 entrepreneurs 36, 74, 188 euro zone debt crisis 73 evolution mandates 19, 45 – 53, 57, 64, 68, 169 experience 4 – 5 , 18 – 20, 22, 24 – 8, 31, 36, 38 – 9, 45, 49, 58, 61, 64, 67, 71 – 3 , 76, 79, 89, 92, 94, 98, 99, 104, 122, 153, 161 – 3 , 171, 182n5, 186, 190 experience misfit 17, 40 – 2, 48 – 9, 51, 67 – 9, 109 external CEO 19 – 20, 48, 49 – 51, 60, 62, 67, 70, 73, 96, 98 – 9, 100, 132, 174 Facebook 58, 164 family business 30, 34 – 7, 39, 41 – 2, 47, 51, 52, 54, 59, 74, 163, 168, 178, 180 family CEO step-out 35 – 6 family-controlled companies 34, 36, 41, 54, 59, 178, 180 – 1 family support 34, 36, 47, 51 feedback 91, 96, 124, 130, 144 – 6 financial distress 18, 20, 23, 25, 61, 72 – 5 , 78 – 9, 89, 97, 106, 131, 143 – 4 , 156

Firmenich, Patrick 5, 49 Firmenich 5, 46, 49 first 100 days 89, 96, 97, 103 first impressions 95, 100 – 1, 103 Flannery, John 4, 75, 81, 139, 153 Flatiron Health 45 Fortum 64, 162 Foundation Medicine 45 founder step-out 35 – 6 Franke 142 fresh outsider perspective 31 Freudenberg 47 – 8, 52, 53, 116, 142 Gates, Bill 63, 165 GE 4, 75 – 6, 85, 139, 153 Genentech 45 Generali 6, 26, 74, 80, 140, 143, 161 Georg Fischer (GF) 16, 37, 172 Germain, Jean-Marc 85 – 6, 102, 108 Gerstner, Lou 112 getting to know people 72, 86 ghost CEOs 130 Ghostine, Gilbert 5, 46, 49 Givaudan 8 Global Brass and Copper Holdings 59, 157 globalization 187 goals 23, 28, 30, 56, 58, 61, 77, 90, 95, 104, 109, 117, 130 – 1, 140, 155, 156; environmental 125; financial 125, 131, 153; initial 155, 159; long-term 95, 144, 156, 157; strategic 25, 109, 130, 153 goal setting 144; see also goals Google 26, 36, 58, 65, 69, 129, 180 Greco, Mario 6, 26, 66, 74, 80, 136, 139, 143, 161, 175 Hackman 64, 162 Halliburton 71, 171 Havel, Vaclav 80 headhunter role 30 – 1 headhunters 5, 9, 24, 28 – 31, 38, 74, 79 – 80, 185 – 6, 190

INDE X

Heidelberger Druckmaschinen 56, 60, 132, 142 Hewlett Packard (HP) 4, 15 Hewson, Marillyn 46 high performers 69, 117 Hirai, Kaz 76 HNA 37 honeymoon period 153 Humer, Franz 44 humility 86, 89, 102, 158, 185 Hundsdörfer, Rainer 57, 60, 132, 142 Hurd, Mark 15 IBM 112 ICT technologies 64 images 133; use of to convey strategy and meaning 133 Immelt, Jeffrey 75 industry change 25, 57; disruptive 57 initial actions 7, 100, 143 initial expectations 1, 17, 56, 66, 97, 112, 123, 153 – 4 initial grace period 98 initial mandates 7 – 9, 41, 45, 87, 89, 92 – 3 , 144, 151 – 60, 153, 165, 166n7 initial results 7, 9, 27, 57, 74, 78, 81, 87, 88, 90 – 1, 109, 128 – 46, 153, 153, 155, 177, 179 initial surprises 17, 52, 62, 63, 101, 137 inside outsider 63 – 4 , 67, 76, 81 interim CEO 76, 129, 163, 169 internal CEO 43, 48, 51, 63, 67, 75 – 6, 98, 172 internal competitor 173 internal versus external hires 51, 114, 119 intuition: in selection 31, 190 Jenisch, Jan 8, 37, 38, 68, 94 – 5 , 97 – 8, 105, 114, 120 Jobs, Steve 3 112, 188 Joehle, Andreas 17, 55, 64, 77, 110, 118, 132, 135, 137, 164 JPMorgan 3, 112

Kaba Group 22, 57, 64 Kansas City Chiefs 113 key employees 98, 121 Klapper, Norbert 66 Klein, Christian 161 Klopp, Jürgen 90, 113 Knight, Phil 41 know-how 58, 61, 115, 118, 164 Koch, Roland 4 Konecranes 64, 162 Kottmann, Hariolf 42, 51 Kraft Heinz 2 Kuoni (DER Touristik Suisse AG) 121, 131 LafargeHolcim 8, 37, 68, 94 – 6, 98, 105, 114, 120 Larsson, Stefan 161 leadership behavior 88, 136, 145, 147n6 leadership principles 95 leadership skills 24, 27, 34, 65, 159 leadership talent 155 leadership team 94, 99, 107, 141, 163 learning the business 3, 49, 86 – 7, 89 – 90, 96, 97 – 9, 100, 104 – 7, 109, 189 legacy 19, 55, 60, 74, 160 Lewis, Jonathan 23, 71 – 2, 75, 76, 78, 100, 105 – 7, 119, 124, 136, 171 linear career progression 188 listening 99, 104 – 5 Liverpool FC 90, 113 Lockheed 46 long-term orientation 144 Lu, Jonathan 4, 42, 179 Lundmark, Pekka 64, 162 Ma, Jack 42, 164 – 5 , 179, 188 machine learning 57 management team 27, 31, 37, 47, 56, 74, 86, 92, 99, 102, 114 – 15, 118 – 21, 134, 136, 141, 144, 159, 165, 170, 172 – 5 , 179, 182n7, 186 – 7

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mandates 7 – 9, 18 – 23, 29, 40, 64, 66, 68, 78, 122, 154, 160, 165, 169, 170, 173, 184, 186; changeemphasizing 134; change-oriented 40; multi-stage 40; second 153, 159; see also CEO mandates; continuation mandates; evolution mandates; initial mandates; strategic mandates; transformation mandates; turnaround mandates Marriott, Bill 36 Marriott Group 36 Mayr, Erwin 5, 19, 58 – 9, 64, 100, 157 – 8 meaning: creation of 130 – 1 mentoring 93, 104, 121, 156 Metro AG 8, 164 Metro Group 39, 98 Meyer, Marissa 65, 69 Microsoft 3, 21, 63 – 4 , 129, 164 middle management inertia 18, 20, 81, 140 “middle-management permafrost” 134 Miller, Jeffrey A. 171 mission 26 Mistry, Cyrus 180 Mollo, Riccardo 100, 120 Mondelez 2 Müller, Andreas 37 Müller, Georg 107, 142 MVV 107, 142 Nadella, Satya 3, 21, 63 Narasimhan, Vas 61 – 2, 76, 90, 99, 101, 119, 123 Neste 24, 33n9 Nestlé 1 – 3 , 47 – 9, 89, 97 network 2, 31, 87, 88, 90, 99, 112, 114, 122 Neunkirchen, Kajo 80 new CEO 1 – 7, 9, 16, 18 – 20, 24, 26, 34, 36, 39, 46 – 7, 49, 53, 54, 61, 71, 75, 81, 85 – 90, 92 – 3 , 95 – 9, 102,

106 – 10, 112 – 18, 120, 123 – 124, 130 – 31, 133 – 4 , 136 – 40, 142, 145, 151, 156, 159, 164, 166, 169 – 70, 176, 184 – 5 , 190 new CEO playbook 88 Next 188 Nike 4, 41, 162 Nokia 21, 64, 128 – 9, 134, 162 nomination committee 29 – 30, 32, 175, 182n7 Novartis 6, 52, 61 – 2, 66, 76, 90, 99, 101, 119, 123, 156 Occhiello, Ernesto 51 Olsen, Eric 94 onboarding 92, 123 organizational brand 143 organizational change 40, 64, 67 – 8, 73, 91, 109, 141 organizational culture 143 P&L (profit and loss) responsibility 76 Page, Larry 26, 36, 180 Paul Hartmann AG 17, 54 – 5 , 77, 110, 118, 132, 135, 137 Perez, William 4, 41, 162 performance 1, 6, 28 – 9 , 38, 56, 75, 76, 115 – 17, 120, 131, 137, 153, 155 – 7, 159, 162, 169, 173, 177, 186, 189; CEO 130, 176; feedback 130, 144 – 6; financial 4, 81, 96, 145, 156, 177, 187; indicators 144; operational 80, 169; orientation 115, 120; see also performance management; performance measurement/ measures performance management 76, 95, 120 performance measurement/measures 109, 130, 144 – 6, 155, 165 Permasteelisa 100, 120 personal interaction 30, 122, 124, 175

INDE X

personal platform 9, 88, 88, 90 – 2, 112 – 25, 134, 135, 145, 153, 153, 155 Peter Principle 162 – 3 Pichai, Sundar 26, 36 Pixar 188 politics 141 Polman, Paul 160 portfolio manager 68 Poux-Guillaume, Greg 40, 67, 80, 103, 115, 120, 125, 159 predecessor: relationship with 18, 110 priorities 45 – 7, 48, 51 – 2, 87, 91, 129, 143, 145, 184 professionalization 58, 180 protectionism 187 Putin 154 Ralph Lauren Corporation 161 reality checks 151, 153 reference check 32 Reid, Andy 113 reorganization 17 repositioning 22, 56, 58, 64 – 5 , 67, 73, 152 resistance 77, 96, 118, 140, 158 restructuring 6, 20, 26 – 7, 58, 70, 74, 76, 79, 116, 129, 144, 160 Rieter 66 Roche 45, 177 Rosengren, Björn 169 SAIPEM 68, 178 Samsung 129 SAP 15, 113, 161 Schmidt, Eric 36, 58, 180 Schneider, Mark 2 – 3 , 48 – 9, 89, 97 Schuler, Paul 37 Schultz, Howard 112 Schwan, Severin 45, 177 S.C. Johnson 41 search 2, 4, 24, 28 – 31, 37, 58, 65, 94, 169, 175 – 6 search committee 16 Secher, Jan 42

selection 15 – 32, 99, 185, 190; analytics in 190 selection process 16, 28 – 32, 99, 185, 190; see also selection sequence of actions 88, 142, 145 Serra, Yves 37 setbacks 153, 155, 157 – 8, 165, 188 shareholders 1, 3 – 4 , 17, 26, 28, 72, 75, 100 – 2, 105, 122, 125, 135, 144, 155 – 7 Shell 49, 154, 160, 172 signal(s) 60, 63, 66, 73, 75, 102, 103, 107, 108, 117, 118, 121, 122, 133, 177, 179 Siilasmaa, Risto 129 Sijbesma, Feike 91, 146 Sika 8, 37, 38, 95 silos 124, 134 simple messages 133 simplification 68, 90, 95, 96, 103, 106, 108 – 109 site visits 121, 124 situation: analysis of 78, 114 social media 121, 124, 135, 191n3 social movements for change 134 social networks 190 soft indicators 177 – 8 Sohi, Mohsen 47 – 8, 52, 116, 142 Sony 4, 76 Sorenson, Arne 36 stakeholder perception 153 stakeholder relationships 125 stakeholders 1, 7, 39, 63, 73, 75, 87 – 9, 90 – 2, 95, 98 – 100, 103, 105 – 6, 112, 122, 124 – 5 , 135, 139, 144 – 5 , 153, 157 – 8, 165 Starbucks 112 Steven, Robert 46 strategic ambition 20, 23 – 5 , 56, 58 – 9, 67 strategic change 18 – 20, 18, 34, 41, 129, 142 strategic direction 5, 18 – 19, 35 – 8, 40, 42, 43, 45 – 7, 51 – 3 , 55, 58, 60 – 1, 67, 73, 129, 154, 158, 160, 164

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strategic mandates 6 – 7, 23 – 7, 49, 55, 60, 85 – 93, 114 – 15, 117, 129 – 1, 133, 139 – 40, 154 – 7, 159, 170, 186 strategy adaptation 46, 51 strategy communication 132 strategy execution 19 strategy implementation 35, 38, 43, 45 – 7, 51, 159 Straumann Group 177 Stringer, Howard 4, 76 succession see CEO succession; succession pipeline; succession planning; succession planning challenges; succession preparation; succession process succession pipeline 8 – 9, 168 – 82 succession planning 168 – 71, 173 – 8, 180, 185 succession planning challenges: family-controlled companies 178, 180 – 1; founder-led companies 178 – 80; smaller companies 178 succession preparation 16, 95, 97 – 100, 103 – 4 , 153 succession process 15, 28, 175 Sulzer 40, 67, 80, 103, 115, 125, 154, 159 Sunrise 64, 131 Suri, Rajeev 129 Swantee, Olaf 64, 67, 91, 131 Swisscom 61, 76, 163 symbolic actions 103, 106 – 8 talent development 121, 124, 156, 170 – 6, 178, 185, 186; and succession planning 171 – 2, 173 – 6, 181 – 2 Tamedia Group (TX Group) 151 Tan, Adam 37 targets 102, 131 – 2 Tata, Ratan 180 Tata Sons 180, 183n12 TDC Denmark 61, 76, 80, 163

time horizon 18 – 20, 18, 40, 43, 53, 97, 156, 170; see also CEO Time Horizon timing 78, 87 – 8, 139 – 40, 143, 145 tone: setting of 101 Tonini, Christoph 152 top management team (TMT) 27, 31, 86, 92, 99, 114 – 15, 116 – 19, 121, 134, 136, 141, 158, 165, 170, 172, 174 – 5 , 179, 183n7, 186; changes to 117; identifying key members of 100 top talent 121, 172 – 3 , 179 top team: relationship with 90, 105, 112, 118, 119 – 21, 123, 130 “town halls” 121, 124 trade wars 187 transformation 3, 18, 18, 25, 42, 54 – 68, 72 – 3 , 77 – 81, 91, 97, 114 – 16, 117, 129 – 30, 133 – 4 , 139, 141 – 4 , 152, 169, 174; strategic 3, 24, 29, 66, 80, 169; see also transformation mandates transformational roles 128 transformation mandates 19, 55 – 67, 73, 77, 79, 109 transition 3, 6 – 7, 9, 21, 41, 45, 87 – 8, 95 – 6, 103 – 4 , 106, 151, 153, 156, 160 – 1, 176 transparency 110, 118, 123, 130, 136 – 7, 173 transparency of actions 91 trust 41, 52, 107 – 8, 114, 116, 118, 123, 139, 147n6, 165, 170, 177, 180; creation of 46, 92, 97, 135 – 7, 153, 158 – 9, 165, 180 turnaround 4 – 6, 18, 23, 27, 55, 62, 71 – 81, 97, 114, 139, 143, 153, 159, 171, 174; see also turnaround leaders; turnaround mandates turnaround leaders 76 – 81, 139 turnaround mandates 20, 72 – 80, 106, 134, 139, 169 Twitter 135

INDE X

Uber 58 underperformance: as a change enabler 76 Unilever 160 Utnegaard, Per 4, 26, 153

Walesa, Lech 80 Wang Jian 37 Welch, Jack 75 Wieland Group 5, 19, 59 – 60, 64, 100, 157

values 27, 76, 89, 99, 102, 103, 107 – 8, 116, 177, 190 Ventana 45 Verizon 65 vision 6, 8, 20, 35 – 6, 43, 44, 51, 55, 58, 59, 65, 67, 87, 88, 89 – 91, 108, 109, 112, 125, 129, 130 – 2, 133, 142, 144 – 5 , 154, 158 – 9, 161, 165, 188 – 9; long-term 131 – 2; strategic 43, 48, 51, 67, 109, 131, 133, 144 – 6 Voser, Peter 49, 154, 160, 169, 171 – 2

Xi Jinping 154 Yahoo 65, 69 Zhang, Daniel 42 Zschokke, Alexander 142 Zuckerberg, Mark 164 Zümpel, Dieter 121, 131 Zurich Insurance Group 26, 66, 73, 80, 135, 140, 161, 175

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