Why New Leaders Are at Risk of Failure
A recent study shows that CEO transitions are happening more often, and under tougher circumstances. Their replacements will need more support than they're usually given.
This is an unusually busy time for transition in leadership roles, which ought to concern anybody who aspires to a leadership position.
The CEO suite isn’t exactly a revolving door, but the pace of change is higher than ever, according to a new study from PricewaterhouseCoopers Strategy&. The turnover rate for CEOs in 2018 was 12 percent, the highest it’s been since the study began 19 years ago. The average CEO tenure has declined, from eight years in 2000 to five years today. And though the percentage of CEOs who were forced out of the job has remained relatively steady, the reasons more leaders are getting shown the door have changed. More execs—39 percent last year compared to 26 percent in 2017—are leaving under a cloud of ethical lapses, which can encompass fraud, insider trading, sexual indiscretions, and the like.
My colleague Ernie Smith recently reported on those CEO exit numbers. But the PwC report left me curious about what these changes mean for the people who’ll be asked to step in as successors. For the ones replacing an ethically lapsed executive, some expertise in damage control will be highly valued. But more than that, they’ll need a support system that’s prepared to help a new leader lead, which will demand a strong board.
But what the study shows is that this kind of support system is often lacking. Successors of long-term CEOs typically deliver lower shareholder returns than their predecessors, and the numbers get worse the longer the predecessor was in charge. PwC’s study covers the corporate sector, but there’s evidence that nonprofitdom faces similar challenges.
For instance, a 2014 Bridgespan Group study showed that onboarding for new nonprofit leaders has been embarrassingly lax: Half of the new CEOs said they didn’t work with their boards to clarify priorities, and two-thirds disagreed with the statement “The board and I worked effectively together to establish concrete measures and milestones for the board to use to assess my performance in my first year.”
And because association executives tend to have longer tenures than CEOs in the corporate sector, the problem of adapting to change can be exacerbated. “Anecdotally, it’s pretty common for [a new] executive following a long-tenured executive not to last so long,” Robert Van Hook, FASAE, CAE, of Transition Management Consulting, told me for a story I wrote a few years ago about CEO transitions. “Organizations get used to one style of leadership, so they tend to like what they have.”
In response to these challenges, the PwC study prescribes that boards be mindful of how precarious the successor CEO has it.
“Boards need to acknowledge that statistically speaking, successors to long-serving CEOs start with the deck stacked against them,” the report reads. “As a result, the board needs to make clear that the new CEO has their support, and that they are not constraining the successor as he or she is thinking through a plan for the company’s future.”
But thinking about transitions shouldn’t wait until the CEO is leaving—especially these days, when the numbers suggest that the departure has an increasing likelihood of being abrupt and unpleasant. “Boards have to take care not to become complacent,” says the report. “Term limits, mandatory retirement ages, or other mechanisms aimed at limiting CEO tenure are not a panacea. Boards have to continuously evaluate whether the person sitting in the company’s top slot is up to the task as conditions change.”
All good advice. But it may be more practical and realistic for the incoming CEO to recognize that the board may not have a clear picture of where it wants to go after the departure of a familiar face, and that he or she will have to directly engage with the board on a transition process that works well for everybody involved.
“CEOs must leverage the board as a strategic asset,” says the PwC report. It’s fair to say that the new CEO will have to work to persuade the board that the chief staff executive is a strategic asset as well.
How has your association handled leadership transitions, and how was the board engaged in the process? Share your experiences in the comments.
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