The new CEO: diving below the surface - November 2012

Every year, about fifteen new CEOs will be appointed in FTSE 100 organisations.  Their confidence on day one may be high but the odds are stacked against them:  the typical tenure of a Fortune 500 CEO, according to Fortune magazine, is only three and a half years - less than that of a one-term US president.  CEOs in the UK fare slightly better but the facts should still give them sleepless nights.

Scanning the surface

A natural and logical first step for any shiny new CEO is to analyse the future business direction and then carry out some form of capability review across key issues: is the current business model fit for purpose?  Is the technology base right to meet future needs?  Do we have the right numbers of people with the right skills?  Is the culture right?  Where are the gaps? 

Almost always, the people issues are the most difficult to get to grips with.  Traditionally, the end results of capability reviews for people resources are a useful start but are usually inadequate.  Where psychometrics are added to the mix, the outcomes often include more heat than light.  Historical performance records on individuals add some insights but are often distorted by internal politics and are always backward looking.

Essentially, new CEOs will, sooner or later, ask one very fundamental question: Who do I need to keep and develop to create a core of really good people for the future - and where do we still have significant gaps? 

Diving below the surface

The first insight below the surface is that the working world is not always mechanistic and logical.  Not just names, competencies and gaps: It’s full of inter-personal networks and local leaders of different types and hidden capabilities. 

There is a huge mismatch between the formally-recognised, so-called ‘leaders’ in management hierarchies and the real leaders in organisations.  The real leaders come in various forms: those who strongly influence the views and behaviours of colleagues, those who others go to for knowledge and advice, those who collaborate naturally across organisational boundaries, those who energise failing projects.  Most of these real leaders are unrecognised, hugely under-used and not in management positions.  

In times of change, humans look to these real leaders, their ‘influencers’, rather than their formal managers.  Who are the key influencers and where do they influence?  Who do people go to when they need different types of technical or business advice or information?  Who are the natural collaborators that can be relied on to link groups during big projects?  Who keeps the energy levels of teams high through difficult periods?  Which formal managers are influential with their staff and have developed effective teams?  Which individuals have created informal networks that link different work groups?  And of course: Which managers don’t merit a mention in any of the answers to these questions?

CEOs who are appointed internally often assume that they know who the informal leaders are.  Externally appointed CEOs recognise that they don’t know but believe that their senior managers do.  We worked with one externally appointed CEO, John who had a senior military background.  John was a very logical person and he was surprisingly open-minded on new approaches to leadership.  But, as more and more local influencers were used in a major transformational initiative that ended up massively increasing efficiency (and staff morale) he kept saying ‘the jury is still out’ on informal leaders.  Even as the successes of the change programme grew month after month, he only grudgingly gave up on his career-long belief in formal management practices.  To his credit, however, he never stopped us from using these key individuals across a whole range of change activities.  John retired at the end of a very successful four years as CEO – he achieved par for the course.

But John could have lasted even longer.  Evidence in recent years suggests that new CEOs who see the potential of informal networks can increase their CEO life span substantially.