Managing Director & Senior Partner; Global Leader, People & Organization; former BCG Fellow
Even during the crippling global pandemic, while facing unprecedented turmoil and massive uncertainty, many companies have made major changes in their senior leadership ranks. Among the marquee brands that have named new CEOs in the past year are Amazon, Disney, Ford, Harley Davidson, HKEX, Honda, IBM, Intel, LinkedIn, Mastercard, Merck, MGM, Patagonia, UnitedHealth Group, Volkswagen, and Walgreens. The Gates Foundation, one of the largest charitable organizations in the world, welcomed a new leader as well.
Although 2020 saw less turnover at the top than 2019 overall, according to CEO tracking specialists, hundreds of exits and onboardings occurred at prominent global companies. As always, the organizations involved were under tremendous pressure—from shareholders, employees, customers, and others—to make the right choices.
Unfortunately, many choose poorly. Botched CEO appointments, Thomas Keil and Marianna Zangrillo observe in the Winter 2020 issue of MIT Sloan Management Review, cost companies tens of billions of dollars annually in market value. Short tenures are common, even among “seasoned executives with previously unblemished track records,” they note, observing that research they’ve been conducting indicates that “more than 15% of all CEOs depart within two years.”
“The best-laid plans—especially succession plans—often fall apart when they encounter reality. What is surprising,” they add, “is how shocked and appalled boards are when their CEO choices fail—sometimes repeatedly.”
What accounts for the failures in these CEO choices? In our view—developed during long careers spent working with company leaders—many boards base their assessment of CEO candidates too narrowly on their CV qualifications. With few exceptions, virtually all of the top executives we’ve worked with have had strong credentials and successful track records. Unfortunately, giving too much weight to past achievements can result in bringing the right person into the wrong place—someone who didn’t have the precise combination of qualities needed for the new role, the new company, or both.
Often, what’s missing from the C-suite selection process is a clear awareness of the kind of individual needed at the time to meet the company’s goals and challenges. Without such awareness, selection committees and boards tend to focus excessively on candidates’ CVs—their personal and professional characteristics—rather than taking into account a wider range of considerations critical to this key leader’s success. These considerations, which we call the Four C’s, include each candidate’s characteristics, of course, but they also encompass cultural context, the construct of the job itself, and the contenders who don’t ultimately win the nod.
A board typically pays most attention to a C-suite candidate’s CV or, more broadly speaking, to the candidate’s personal and professional characteristics—his or her areas of special expertise, education, charm, previous executive and leadership experience, awards and recognition, past successes, involvement with industry and professional organizations, community involvement, and public profile.
But “characteristics” also refers to who the candidates are as individuals and as decision makers. What is their leadership style? How do they work with others? How do they deal with things like ambiguity? Can they lead from the front when required but act as a consensus builder when that’s the more appropriate course? Are they open to new ideas and adaptable in response to changing conditions?
All of these characteristics are important—but they’re not all that’s important. There’s more to choosing a new leader than assessing a candidate’s work experience, personality, leadership style, and public profile.
By way of analogy, consider the purchase of a diamond ring. When some people shop for diamond rings, they zero in on the size of the stone, as represented by its carat weight. That’s what gives a ring its “wow” factor—and it’s the shorthand that many people use to evaluate a ring’s value. But as any reputable jeweler will tell you, carat weight is only one of the C’s that determine a diamond’s true value. Just as important are three other C’s: color, clarity, and cut. A careful buyer will consider all four. So it is with boards that want to select a CEO wisely.
The other three C’s have less to do with the individual candidates viewed in isolation and more to do with aspects of the organization that the winning candidate must lead. Nevertheless, these considerations are critical to the incoming executive’s success and, in our view, should precede any conversation about specific individuals:
A board that focuses on these Four C’s—characteristics, context, construct, and contenders—when choosing its C-suite team will maximize its chances of making the right decision.