How many times has a CEO candidate seemed perfect in every way? They have exceptional degrees, experience, and a proven track record that completely matches the job description. Yet 12 months into the role, the CEO begins to fail. Maybe they struggle with the board of directors, or they cannot align their own management team. In a time when CEOs are being asked to quickly adapt and make the most of a volatile environment, hiring practices are becoming laser-focused in finding a CEO with specific skills and experiences. But too often, the hiring leaders are not considering the environment in which their newly hired CEO will be operating.
I have been a chief human resource officer for large publicly traded and private equity-backed companies throughout my career, and now serve as the CEO of a leadership advisory firm where we assess CEOs and organizations. Over the years, the organizations that I have worked with have tried many different approaches to assessing CEOs to make a truly predictive hiring decision. After learning from thousands of hiring processes, I found the most underrated and rarely assessed aspect of a successful CEO hire: context.
The 5 most important contextual considerations when hiring a CEO
Here are five of the biggest contextual considerations when hiring CEOs--and how they shape the organization's success (or failure).
1. Strategic plan or investment thesis for the company. What are the critical initiatives and areas of focus that must be carried out in the near-to-midterm by this CEO? Is it a growth/value creation plan or a turnaround? Does the company need to cut costs or add infrastructure and overhead? Dropping a growth CEO into a turnaround business (or vice versa) can lead to confusion and poor results. When the hiring team understands the larger context of what the company is trying to accomplish and how they need the newly hired CEO to function, they can align everyone's expectations in the right direction.
2. Expectations and function of the board. Is the board completely aligned on the strategic direction of the company? Are the board members more advisory or governance-minded? Are there board members who can provide some level of strategic advising or direction for the CEO? If there is a newly hired first-time CEO walking into a situation with a misaligned or dysfunctional board of directors, that is a recipe for disaster. Make sure the organization's own house is in order before bringing in a talented but untested CEO.
3. Health and wellbeing of the management team. Will the management team need to be upgraded? If so, which areas? Or is this management team healthy, with some key players needing to be optimized and further leveraged? Companies need a clear understanding of whether they are bringing in a CEO to develop, retain, and align talent, or if the new CEO will focus on building and upgrading talent. These are often two different skillsets.
4. State of the industry and market. Do not bring a "peace time" CEO to stabilize a company when a "war time" turnaround CEO is needed. Also, be wary of hiring a new CEO who likes to stir the pot and break some glass, if the market or industry cannot bear it.
5. Company culture. What is the history of the company? How does the company operate? What are the company values? What hired executives failed in the past, and why? "Organization rejection" of a newly hired CEO due to a culture misfit is common. Some CEOs have a great track record of success, but only in a certain type of company culture. For example, a CEO might have been successful in a big system environment, but might struggle after being placed into an extremely hands-on role where they have minimal systems data and process support. Or a CEO with a background in scrappy startups who gets hired by a larger organization might get impatient with the larger layers of bureaucracy and formal processes.
Context matters and must be assessed as part of the hiring process. Along with the candidate's own individual skills, strengths, and personality characteristics, the company should think carefully about the contextual factors to help determine whether a CEO is likely to succeed.
Understanding context: Overcoming biases when evaluating CEOs
My firm, Summit Leadership Partners, commissioned a study of private equity executives and portfolio company CEOs in 2020. The study found that the top three factors for CEO success were the ability to establish a high-performing management team, building a trusted and transparent relationship with the board of directors, and creating a clear and actionable strategy. These factors are critical when assessing or preparing and supporting a CEO for success. So why do so many boards and investors get it wrong?
One big reason is bias during the hiring process. People tend to have certain biases, whether they realize it or not, and the biases sometimes interfere with good judgment around hiring decisions.
This might include:
- Like-minded bias: People tend to give higher ratings to CEO candidates that are like them or that express similar viewpoints.
- Recency bias: Sometimes the CEO candidates who were interviewed last in the process will receive the highest ratings.
- Halo effect: A CEO candidate has one great attribute that overshadows all the other reasons not to hire them.
Organizations also tend to over-index pedigree experiences, pedigree backgrounds, and other factors that may not impact success in the role and can perpetuate a lack of diversity when making CEO hires.
Looking at context helps organizations overcome bias, illuminate the bigger picture, and be more inclusive when considering CEO candidates. Sometimes superstar CEOs fail to thrive in a new role of leading companies because the strategic environment or other contextual elements were the wrong fit. In other situations, candidates who looked less compelling on paper, or who did not interview as well, have become highly successful CEOs because they have the right fit for the context of the role.
Hiring managers need to think more broadly about context and consider multiple complex contextual factors as part of their CEO hiring decisions. Making a successful hire is not just a matter of choosing the right CEO with the right skills and experience. It is about thinking about the larger environment, culture, and strategic circumstances in which that person needs to operate. Assessing for context can help increase an organization's probability of making the right CEO hire.
Dan Hawkins, Founder and CEO, Summit Leadership Partners
Dan advises Boards, CEOs, investors, and business leaders on strategy execution and value creation through leadership and organization performance.
After a successful corporate career as CHRO with companies and businesses ranging from $1B to $20B in revenue, Dan founded Summit Leadership Partners to help growth-oriented companies and business leaders scale and improve performance. He has deep expertise in leadership, strategy, assessment, executive, and organization development.
Under Dan's leadership, Summit has become the go-to leadership advisory firm for PE investors and mid-cap companies and has been recognized as one of the fastest-growing consulting firms by Inc., Consulting Magazine, and Charlotte Business Journal.