Winning the CEO Succession Horse Race

Winning the CEO Succession Horse Race

At some point, virtually every ambitious executive asks this question. According to a recent global study a remarkable 87% of managers aspire to the corner office. But it’s not just whether you think you deserve the top job, it’s whether your board of directors thinks you deserve it. This leads to an obvious question. How exactly do boards make this important decision? It’s an arcane process that is often cloaked in mystery and uncertainty, causing lots of anxiety among otherwise supremely confident executives.

Let’s take a sneak behind closed boardroom doors. Over the past twenty years I’ve advised boards and high potential executives, written Harvard Business Review articles on the topic of leadership and CEO succession planning, and authored a best-selling book titled, “Why are We Bad at Picking Good Leaders?” Let’s demystify the process boards use to determine who should be the next CEO.

Lessons for aspiring CEOs that want to win the horse race: Know the race exists; Secure an invitation; Be realistic about your odds of success; Enlist a world-class trainer

1-Know the race exists

Even though boards don’t like to publicize it, the process they often use to select a CEO is referred to as a “horse race.” An overused and trite metaphor, you say? Bear with me. I was born and raised in Louisville (“Lou-uh-vuhl,”), home of the Kentucky Derby, so let’s stick with it.

Made popular in the early 1990’s by companies like General Electric, Procter & Gamble and GlaxoSmithKiline, horse races have returned with a vengeance in the corporate world. Today 80% of CEOs are promoted from within; this percentage is much higher than historical averages. Apparently too many boards have been burned by recruiting superstars that have failed to fit within the unique culture of their organization. It’s not at all surprising that boards increasingly fish from their own backyard to find the next homegrown CEO. The high percentages of internally promoted CEOs along with record numbers of executives that aspire to the top job are providing boards with an ample supply of talented candidates. Boards increasingly rely on the horse race as a tool to vet, rank, categorize, and groom these candidates, and ultimately, to help them pick the winner.

Most boards also praise amongst themselves the horse racing process as a way to foster a culture of leadership development, transparency and accountability throughout the company. The best leader wins the race according to ability and desire to hit well-defined operational and leadership development targets. Theoretically, no one can complain that they were passed over, because the process is transparent. In reality, those who are passed over “can” and often do complain, although they shouldn’t, if the horse race runs smoothly and is a true meritocracy.

2-Get invited to the race

Now that you know about the horse race, how do you secure an invitation to compete? This is the easy part. No, really. Just be a top performer with a track record of results. I’m not trying to be sarcastic, or even coy. If you’re serious about one day contending for the top job, then the price of admission is a track record of results across a wide variety of different domains–e.g., growing a new market segment, turning around a struggling business, hitting revenue and profitability targets over time. There are no shortcuts or acceleration paths; you need both depth and breadth of experience to get an invitation. That said, most elite, high potential leaders within an organization (say the top 3-5% of executives) can easily check this box, or else they wouldn’t be high potential leaders in the first place.

And don’t worry. If you’re a top performer, your company already knows about you. You’ve already received an invitation to the race whether you know it or not. Most companies don’t like to mention the existence of a horse race due to the misguided fear that it will cause distraction. But human resource departments, aided by sophisticated, enterprise-wide tracking systems, methodically monitor your ability to consistently hit performance targets and key metrics, regardless of where in the organization you work. Once on the radar as a high potential leader, HR departments have “talent war rooms” in which they plaster pictures of top executives all over the walls, with squiggly lines and arrows depicting potential next moves. The challenge is getting your resume–and you–in front of the actual board of directors. Securing that offer is a bit more difficult than simply getting invited to the race.

3-Be realistic about your current odds (otherwise you can’t increase them over time)

Boards know a secret about handicapping your odds as a successful CEO. Your past results only tell half the story, at best. In and of itself, past results tell the board very little about your CEO readiness. Boards are forward looking, and they’re very serious about assessing leadership potential. And they’re becoming increasingly sophisticated in their ability to quantify the soft, but critical, leadership qualities you’ll need to be effective if you’re one day promoted to chief executive. What exactly are these soft skills, and why are they so important in the top job? You should become very familiar with them, as they’re the make or break qualities that will determine your viability for the top job, and good boards will debate them in excruciating detail. Who can blame them? CEO succession planning is their number one responsibility.

Soft skills that lead to hard results as CEO: EQ, Empathy, Judgment, Agility, Vulnerability and Authenticity.

Emotional Intelligence (EQ): Boards know that as a CEO, you are constantly sending a powerful signal, to the entire company, with not only your words, but with your body language, emotions and even facial expressions. You’re also making huge decisions, every day, based on the way you view the world–your preconceived notions, expectations, world views. Consequently, boards want to know if you’re self-aware? You’d be surprised how many otherwise brilliant managers are almost delusional about how others see them. Do you have an accurate view of your social impact, a clear idea of how others in the organization see you, including your board? Are you aware of how certain situations–particularly when you confront complex, ambiguous or contradictory challenges–trigger emotions and feelings? Are you able to effectively control and regulate these emotions, and even use them to your advantage? Can you effectively use both the left and right side of your brain to solve complex challenges? From the board’s perspective, lack of EQ is one of the biggest derailers of star performers on the CEO path.

Empathy: CEOs must interact, often one on one, with a wide variety of constituents that have immense influence on the economic value of the enterprise. To manage this risk, boards need complete confidence that their ultimate selection will have the ability to create strong and meaningful bonds with analysts, investors, unions, communities, strategic partners and countless other important stakeholders. Empathy is the underlying leadership quality that enables a strong interpersonal connection, so the best CEO candidates consistently demonstrate an ability to understand the logic and point of view of others. This is level one empathy. If you can also accurately discern, in real time, what others might be feeling–and use this knowledge to help you custom tailor your argument in a way that connects with a wide variety of different constituents–then you’ve graduated to level two empathy. Getting to this level of course requires that you first understand and trust your own feelings, which isn’t always easy and requires real work. The best CEO candidates demonstrate level three empathy, which borders on compassion. Compassionate leaders can actually feel what others are feeling. This is not to say that you need to act on these feelings, or let them sway your decision. But getting in touch with others’ feelings–along with thoroughly understanding their point of view–is a powerful way to enhance connectivity.

Judgment: Gordon Moore, founder of Intel, once famously suggested that the number of transistors on an integrated circuit will double every two years, despite how impossible it seemed at the time. Moore’s law could just as easily apply these days to the amount of information that bombards the desk, the computer and the Internet of modern day leaders. Every couple of years it seems to double. Information overload is getting worse and universal connectivity is ubiquitous. Boards need to know the CEO can cut through the clutter and focus on the most salient issues and data. Attractive CEO candidates need to demonstrate that they can make tough tradeoffs, focus on just the right issue at the right time, and make sense of the world in practical ways. This becomes logarithmically more difficult as a CEO, as virtually everyone with whom they interact will have his or her own idea, own agenda, and own supporting data to back up their arguments.

If information overload isn’t challenging enough, CEOs ironically often face the exact opposite dilemma. They need to make very large, “bet the company” decisions with very limited or incomplete data, particularly if they are innovating in a completely new space. Making these kinds of stressful decisions with incomplete data requires analytic ability, strong reasoning skills and confidence. That’s why IQ has long been an important–and widely used–indicator of CEO potential. In that sense, judgment is the hardest of the “soft CEO qualities.”

However, the best candidates also find ways to cull and mobilize lessons from past experience, finding bits and pieces of knowledge and wisdom that will help them solve new challenges. Fine-tuning your ability to think contextually will, over time, enhance leadership judgment. It is also why a wide variety of experiences, each offering new pieces of wisdom, can be so valuable to a CEO where completely novel situations are faced on a daily basis. That leads to the next essential leadership quality–agility.

Agility: Never before has the world changed at such a rapid pace. Or maybe that’s just how it seems. Only time will tell. Regardless, boards realize that CEOs must be agile and flexible. Boards also recognize, however, that there is a fundamental tension between adaptation and setting a clear, strategic direction for the company. Awareness by the CEO of subtle, but important cues that suggest a change is necessary is called mindfulness, and it’s an important component of agility. Boards despise candidates that are on “cruise control,” relying on past experience alone to make key decisions. Boards instead want CEOs that are mindful–aware, focused, and flexible enough to solicit new ideas, from a wide variety of people, places and situations; but at the same time smart enough to only act on the novel ideas that truly make a difference. Sometimes a change in direction is needed. But too much change can send a muddled message and confuse employees and customers. The best CEO candidates walk this tightrope with precision and confidence.

Vulnerability: One of the biggest shocks new CEOs face is that they are often overcome with feelings of utter powerlessness. As CEO, not only are you not the boss–you still report to and work at the leisure of your board–but you’re reliance on others hits an all-time high. Despite all the value you created in previous roles, there’s no way you can do it alone as CEO. Acting like you’re in total control–omniscient and omnipresent–is one sure way to repel the very people you need most. Vulnerability, not venerability is a key ingredient of success as a modern day CEO. A healthy degree of narcissism is fine, providing confidence as you stand on the ledge to create, to change and to lead. But standing on that same ledge will undoubtedly reveal many of your flaws for the world to see. Embracing these flaws is what makes us human, and counter intuitively, more able to connect in a meaningful way with colleagues. Acting like these flaws don’t exist, sweeping them beneath the surface hoping they don’t rear their ugly head, destroys the foundation of the final important leadership quality–authenticity.

Authenticity: Arming yourself with sound judgment, accurate self-awareness, savvy empathic skills, and leadership agility will unquestionably help you secure an early lead in a CEO horse race. But winning the race, and truly making a lasting impression with a discerning board, requires authenticity. Are you aware of and do you embrace your own personal story? My friends Scott Snook, a professor at Harvard Business School and Nick Craig, Founder of the Authentic Leadership Institute, estimate that less than 20% of leaders are crystal clear about their mission and purpose; fewer still are able to articulate their story in a compelling way. Candidates must find and define their purpose before they have any chance of putting it to use as CEO. Have you thought long and hard about your mission, purpose, guiding principles and values–your True North, if you will — and do you understand how those doctrines help you create impact, develop resilience and connect with others? Think of it this way. If you decided to leave your company, what would colleagues most miss about you. What is your brand and passion that you bring to work every day? Directors aren’t usually overly concerned with style, personality or whether a CEO is introverted or extroverted. But they always care about and crave a CEO that is comfortable in his or her own skin and whose own purpose and value system is aligned with the underlying mission of the organization. This is the kind of authentic leader that others truly want to follow.

4-Get a world class trainer

No leader is perfect. Take advantage of the fact that CEO succession horse races today are much longer than they used to be–starting years before the incumbent CEO steps down. A longer race gives you more time to get your house in order and your story straight.

If you haven’t already, recruit a world class trainer–a coach well versed in the CEO selection process–that can help you identify, assess, develop and stress-test the critical soft skills you know you’ll need to be considered a realistic CEO candidate. Your coach should be a big picture thinker who not only helps you develop individual skills, but more importantly also shows you how to put all of the pieces together in a sensible, holistic way. You’ll need to present the full package to the board, not just bits and pieces.

You’ve graduated past the stage of hiring a coach for tactical advice, e.g. time management, overcoming obstacles and even strategic thinking. Although undeniably important, you’ve likely already mastered these competencies. At this stage of the game you’ll need a sounding board on more strategic, CEO-level proficiencies and values–like how to position yourself as an authentic leader; how to one day get a board of directors united behind your new vision; or how to create the right culture. These are not issues with which you can always work directly with a board or even your current CEO. You need a safe space to take chances, explore new concepts, pressure test your ideas and refine your story.

Together, you and your coach should put yourselves in the shoes of your directors, thinking about the company’s most likely long-term strategic direction and cultural aspirations. Based on this, develop a scorecard that identifies what your company’s ideal CEO might very well look like 3-5 years in the future. What aptitudes should the CEO have; what experiences, what values, what kind of vision? Your coach should then ask questions to help you think through your own experiences, qualities, and passions, as well as guide you towards identifying what matters most to you as a leader. If there’s too large a gap between your own values and passions and the company’s likely strategic path, then you may not even want to be the next CEO. If the gap is manageable, then a good coach will help you bridge it.

Have your coach take you through a CEO-level, executive assessment. This is a special kind of assessment that’s in-depth and highly customized. You should go through the entire process, including 360 degree referencing. Then insist upon unfiltered, confidential feedback that will throw into stark relief the kind of work needed to help you become “CEO ready” in the minds of your company’s board. You’re not looking for a coach that is “Mr. Nice Guy,” you’re looking for “Mr. Tell it Like It Is.” This unvarnished evaluation will help you create a customized leadership development roadmap and be the underpinning of a practical coaching plan.

Don’t let this roadmap sit on a shelf and collect dust. If prepared correctly it will include pivotal experiences and new challenges that are critical to preparing you for the role of CEO, e.g. a stint in R&D to help develop a new product; a rotation in Shanghai running the company’s growing Asia Pacific P&L, etc. Your coach can help you reflect in real time about how to think about and solve leadership challenges as they surface. You’ll also want access to a well-established network of experts and mentors–both internal and external–that can be called upon for specific advice and counsel to help you surmount seemingly intractable obstacles. Remember, the coach is there to serve as a guide as you develop your leadership capabilities on the journey to CEO. Mentors are the perfect complement in that they can share war stories and offer practical lessons in real time. Your personal coach, your mentors, and your other advisors/experts should communicate and work together as a team–serving as your own customized task force to help you become a more effective leader.

You should also enlist your coach’s help in setting up simulations and practice rounds. These will be invaluable in helping you transform raw qualities into actual skills that matter most to your board. Have your coach create high impact coaching sessions and developmental role-play scenarios–like analyst conference calls, a meeting with a government official, an interview with CNBC, or even an important board presentation–that will force you to demonstrate and develop your empathy, self-awareness and authentic leadership style. Have your coach probe about your most challenging experiences at work and in life. Dig beneath the surface to discover your personal brand. Your coach wouldn’t be doing his or her job if he didn’t ask tough, uncomfortable questions during the process, poking holes in your argument and forcing you to think very carefully about your logic. The important point is that it is a safe space, one where you can reflect and adjust, grow and gain confidence along the way. Just because it’s tough doesn’t mean it can’t be fun and engaging as well.

When it comes time for the board to formally assess your leadership ability–which they most certainly will, whether it takes three months or three years–you will have already had great practice. Your story will be stress-tested and authentic. Your competencies and passion are much more likely to sync up with the Board’s scorecard. No one can predict with certainty who will win a CEO horse race, but going through this process will certainly help you put your best hoof, err, foot forward.

Source: Huffington Post / Jeffrey M Cohn

Service HrmForce