Assessing the Risks of Appointing an Unproven CEO
Every business leader knows that failure is a part of the journey toward success, and I have certainly faced my share of challenges. The key lies in how we learn from our setbacks.
Now, from my perspective as a chairman and investor, I examine the issue of failure differently. When public companies struggle—whether it’s declining profits, stagnant growth, or anxious shareholders—the immediate response often falls on the CEO. However, boards must also confront their own role in these failures, as they are responsible for the appointments they make.
It is remarkable how frequently boards miss the mark when it comes to hiring leaders. Much of the time, this is due to recruitment processes that lack broader perspectives, misjudged criteria, and inadequate assessments of leadership qualities.
I often find myself questioning how retail companies falter when they select a CEO with minimal industry knowledge, or how financial giants lose their edge bringing in bankers who lack true operational experience. My reaction is always, “What did you expect?”
If we hire leaders without the necessary experience and merely hope for success, the accountability should not rest solely on the CEO. This principle holds true at every organizational level; if a team member underperforms, it might stem from having been promoted beyond their capabilities. Thoughtful consideration is essential before assigning blame.
As a chairman, I start by asking the rationale behind a new appointment. What is the ambition driving this choice? What changes must we implement to achieve our goals? Which skills are essential for success, and what mission can unify the company?
Following this inquiry, I refer to the Procter & Gamble hiring philosophy: Has done. Can do. Will do. It is crucial not to risk everything on a CEO who has not yet demonstrated their capabilities. Given the vast responsibilities of a CEO today, if someone’s experience is highly specialized and limited to a single organization, particularly one where they did not interact closely with clients or teams, they may not be the best fit. While they may not need direct industry experience, relevant experience remains critical.
A successful CEO must have a history of sustainable achievements beyond mere short-term gains. They should also possess the interpersonal skills to motivate and galvanize the organization. They ought to have a proven track record, the ability to perform, and the vision to exceed expectations.
I take full accountability for the CEOs I have brought on board in the businesses I lead or invest in. When aligned with the right plan, my chosen leaders—such as Ross Clemmow at HomeServe and Jambu Palaniappan at Checkatrade—can steer the organization toward success.
At times, boards may overcomplicate matters by hiring external candidates who lack a grasp of the existing culture, leading to morale issues. Yet, when the appointment is right, a CEO must stand firm against headwinds.
Consider Philip Jansen’s departure from BT, where the share price fell by 50% during his tenure. Nevertheless, his strategic decisions paved the way for a stronger future. I believe Allison Kirkby, his successor, will thrive partly due to the groundwork laid by Jansen, illustrating how boards can successfully align their long-term vision even when short-term pressures exist.
Be wary of candidates who might get distracted by non-core initiatives or those who shy away from challenging the board. While consensus is valuable, it should not come at the expense of transformative leadership decisions. Boards require leaders who can forecast long-term challenges and are not solely focused on preserving the status quo.
Additionally, it is vital to ensure that the board is deeply involved in the hiring process, avoiding scenarios where a CEO imposes their preferences on the board. Internal candidates often represent the best option, as they already understand the company culture and its market dynamics.
When evaluating external candidates, I emphasize their records of driving revenue and profit growth along with their plans for team development. High-caliber leadership talent and a focus on internal growth are essential, complemented by qualities such as humility, curiosity, and a commitment to the company’s vision over personal ambition.
To facilitate effective hiring, professional recruiters who are experienced in your sector are invaluable. Providing them a clear, detailed job specification that reflects board consensus helps articulate the challenges and expectations ahead, establishing a precise candidate profile that aligns with the company’s cultural values.
As I seek a new CEO for Business Leader, my criteria focus on proven leadership within B2B settings. A clear, narrowed selection process enhances our chances of success.
In my earlier days with HomeServe, I relied heavily on personal connections for recruitment but soon recognized the necessity for a wider talent pool. Investing in professional headhunters has proven worthwhile. A major lesson I’ve learned as a chairman is to avoid candidates who attribute poor performance to external factors like the pandemic or economic crises. True leaders rise to challenges and deliver results, regardless of outside circumstances.
When you hear about a CEO’s failure due to lack of relevant skills or industry fit, consider who made the appointment; often, that is where accountability lies.
Richard Harpin is the founder and chairman of HomeServe and Growth Partner.
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