Transitions at the Top

What Organizations Must Do to Make Sure New Leaders Succeed

Dan Ciampa, David L. Dotlich

• Publisher: Jossey-Bass
• Year: 2015
• ISBN:
  9781118975091
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Clear, actionable guidance toward managing a major leadership change

Transitions at the Top is an insightful, informative guide to navigating a change in leadership. A smooth transition is critical to both the health of the organization and the success of the new leader, but good planning and strong strategy can help organizations come out fresher and more driven on the other side. This book provides the specific principles, guidelines, and actions that boards, C-suite executives, and HR leaders need to guarantee a successful CEO transition. Continuity is key as one leader passes the mantle to a successor, and this book spans the steps and events that take place from when the candidate accepts the offer, all the way through the point where a critical mass of followers have accepted him or her as the established leader. Coverage includes guidance on who should be engaged in the process, as well as role-specific advice for each member of the transition management team.

Many books have been written to advise new incoming CEOs, but there is little guidance available for the organization as a whole. This book provides actionable advice on smoothing the transition without breaking stride.

• Maintain continuity during leadership transitions
• Strengthen focus on culture, systems, and processes
• Engage all influential executives in smoothing the transition
• Lay a foundation to help the new leader succeed

The transition management team plays a crucial role in maintaining the health of the organization during a time of major change. Strong strategy becomes critical when an organization is in flux, and high engagement is key. Transitions at the Top provides expert insight, clear guidance, and a solid plan for a smoother transition.

1
Complexity and Critical Crossroads

A lot is at stake during the transition of one top executive to the next, especially at the CEO level. Emotions often run high and can cause an otherwise simple event to take on outsized importance. Consider the case of Dave, a 62-year-old CEO who had taken over a midsized technology company. As he edged toward retirement, the board was committed to finding an executive to replace him and lead the company into a new era of management.

Dave had been brought on five years earlier by private-equity investors who had taken the company private to fix problems that had come from costs that were too high and the lack of discipline or an infrastructure to support rapid growth. In getting the company back into shape, Dave had turned it into the second largest in the industry in revenue and the leader in profits. It had grown rapidly, not only financially but organizationally, and had gone from being just a high-potential company when Dave took over to a large, successful corporation.

In discussions with the board, Dave agreed to manage a planned transition. The company had become too big and complex for any one of the existing senior managers to lead when Dave left. The plan was to conduct a search for an executive to be hired into a new position as executive vice president that combined marketing, sales, new product development, and business development. If that worked well in the first year or two, the executive vice president would move to chief operating officer and then, a year later and upon Dave's retirement, to CEO.

Dave had enlisted his chief human resources officer, Wes, to run the details of the search and find the best executive search firm. The two met weekly to review progress. One of those meetings included a conference call with the search firm's senior partner, who mentioned that one candidate, whom we will call Jim, had been “enthusiastically endorsed” by the most influential director, Harvey, who had worked with Jim in another company.

When Dave learned of Harvey's endorsement, he became visibly upset. “Why did it take all this time before I knew this guy is Harvey's favorite?” he asked Wes after the call. “Is this a setup? If they know each other well, how can I trust this new guy? Will he go around me to Harvey? If Harvey wants to find out what's going on, will Jim be able to say, ‘No, go to Dave’? I need to get on this with [the lead director] right away.” And, testily to Wes, “Did you know about this?”

Wes said had not been aware of it. “Dave, I understand how upset you are,” said Wes, “but let's find out exactly what happened. Before you call [the lead director], let me handle this.”

Without revealing Dave's suspicions, Wes talked separately to the lead director and to Harvey. It turned out that the first mention of Jim's name was by the search firm rather than Harvey and that Harvey had merely said he knew Jim and had always been impressed with him, stopping well short of an “enthusiastic endorsement.”

Dave's worry that former connections would disrupt the special CEO-board relationship was largely put to rest. While Dave's concerns were valid about the potential problem of his backup and a key board member being longtime acquaintances, there was no evidence that it should stand in the way of Jim being a candidate. But, it provided a reminder to Wes of how important absolute trust was to the formation of this relationship.

From Dave's perspective the relationship with his designated successor was hardly a trivial matter. The worst-case scenario would be if comments from a subordinate to a director were taken out of context and, as Dave put it, that he would “get blindsided at a board meeting.”

Wanting to avoid a potential blindsiding may seem an issue leaders should not worry about at a major turning point in the leadership of a company. But in fact, faulty communication can lead to inaccurate assumptions that in turn can evolve into relationship problems that, if not handled in just the right way, can cause a transition to fail. Indeed, a series of such small errors often explain why a high percentage of new leaders fail to reach their two-year anniversaries.

Because of skillful transition management by Dave, Wes, and the board, however, Jim was not one of them. His interviews with directors and with Dave went better than expected. The board and Dave agreed that to attract Jim to the company, the job had to be expanded from executive vice president for marketing and sales to chief operating officer. Jim was impressive enough that all believed that he was ready for that job. Indeed, Jim rose to the occasion, and three years later he became CEO as Dave retired on schedule.

As with any leadership situation as complex as a CEO succession, there were many reasons this one was a success. While they will be detailed throughout this chapter, there were two that should be emphasized:

• Dave was mature enough to understand his first suspicious reaction as just that—a first reaction. He wisely pushed the pause button and waited for facts to be gathered before making any accusations. He and Wes agreed that, while Dave's concerns were valid about the potential problem of his backup and a key board member being longtime acquaintances, no evidence existed that it should stand in the way of Jim being a candidate.
• Wes, the CHRO, operated in a model way. His decision to in effect step in between his boss and a potential conflict with the board, which could have turned into a crisis, gave the chance for Dave to reflect rather than react and for someone who was more objective to gather the facts. Wes realized that the relationship of Jim and a director could be a hurdle that Jim would have to overcome later unless his relationship with Dave became a positive, trusting one.

The success of Dave, Wes, and Jim in the management of a transition provides a helpful example for how transitions can and should be handled. It is an exception, however. In too many cases, when major players in a transition come to these crossroads, they react in ways that derail the transition. Throughout this book, we describe success stories but also many such problematic handoffs and the reasons for them. We chose to begin with a successful one to make a key point: Leadership handoffs can and will turn out well if the major players react appropriately at critically important crossroads. They don't need to succumb to inappropriate reactions that can easily cause negative results.

It is our position that most transition failures take place because the major players are unprepared for the critical crossroads they encounter, and in particular because they underestimate or ignore the complexity of the process. The transition is a general system made up of individual, interrelated steps where reaction to one step affects the nature of those that follow. The success rate of leadership transitions will not improve until the major players become students of this dynamic transition system and its complexity.

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Transitions at the top fail because major players are unprepared for critical crossroads…often, because they underestimate or ignore the complexity of the transition process.

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Complexity

What makes leadership transitions complex? It is a combination of two factors:

• The adjustments required by the individual major players involved on the company side of the equation and the interactions between them (the sitting CEO, the board, the CHRO, and the senior managers)
• The systemic adjustments in the organization that accompany the transition (strategically, operationally, politically, and culturally)

Individual Adjustments

On the individual front, each of the major players must become a student of transitions because each has something valuable to gain in managing the complexity and making the transition go well.

CEO

The sitting CEO's primary responsibility, of course, is leading the organization so that its various stakeholders receive what has been promised. The stakeholders each look to the CEO to ensure delivery. Investors expect the collective efforts of employees will produce a return on their investments. Customers expect value, quality, and reliability. Suppliers want predictability, consistency, and accurate forecasts. Employees want a place where they can feel valued, be challenged, contribute, and be compensated fairly. And communities want a good corporate citizen. It is a big enough job during normal, stable times to steer the organization so these varied and often-conflicting needs are satisfied. But when something happens that upends the normal course of events, the CEO's job becomes tougher. The bigger the change, the more complexity is added to the mix.

A change that qualifies as major is when the strategy is recast to the point that the way the company operates must change in a fundamental way. Another change that qualifies as major is a CEO transition. And it is not infrequent that they coincide.

That was the case with Dave. As we said, Dave had been CEO for five years, and during that time he brought order, stability, and discipline needed for the business to grow profitably. He was working on a new strategy in the months prior to agreeing with the board that he would find a successor. The strategy he had taken over when he had joined as CEO had worked well, but he believed the company was coming to the end of one era and was poised to begin another. He led his senior managers through a process to envision a company in five years that was larger and more efficient, dominated the industry in market share, and was its leading innovator. The board endorsed the effort and encouraged Dave to formulate a detailed strategic plan. It was in process when the decision was made to look for a successor.

At a time of his own leadership transition and also a significant shift in strategy, the sitting CEO has his hands full. He must perform the normal CEO tasks of representing the company to outside stakeholders, being the beacon of the company's mission and values inside, and keep the business running day-to-day to profitably deliver quarterly revenue. In addition, he must take on two other tasks that are not only significant but are also the type that become even more complex if not done right the first time. The first is assimilating a successor and deftly managing the handoff. The second is to actively fulfill his role as chief visionary and chief strategist: chief visionary so his people believe in the direction in which he is headed and chief strategist so there is a realistic plan to move the whole company forward.

These items take up much of the CEO's efforts and schedule. But they occupy only one part of his mind. In addition, his thoughts are taken up with what the handoff means to him personally and to the legacy he will leave behind. We will discuss this personal aspect in detail in Chapter 5 and in various parts of other chapters, as described by the three dozen CEOs with whom we talked. For now, the point is that when added to a strategy upgrade, running the day-to-day business, and being the chief visionary, managing one's own transition with its organizational and personal implications adds a great deal for any CEO to an already complex role.

Board

The board also faces a great deal of complexity in handling a transition. In cases where directors, and not the CEO, are primarily responsible for managing the transition, the board must devote significant time on top of its regular duties. And, of course, as it does so, it must marshal the resources of the company and utilize them well. Even in cases where the CEO manages the process, the board must organize for and devote time to overseeing the overall effort by ensuring the process is well designed and managed and that directors are available at critical junctures. Perhaps what brings complexity for the board as much as anything else is managing relationships, including with the CEO as he prepares to depart.

In one case, the board and CEO/chairman (who was also the company's founder) agreed on a retirement date. The CEO was in his early seventies and had devoted the majority of his career to starting and building the company into the leader in its industry. He was fêted regularly as an industry visionary, and his company regarded him as an employer of choice.

These were the best of times for him, the reward for a life of taking risks and working 18-hour days. He was in good health and seemed to be finally closing in on an acquisition he had been pursuing for several years, one that would bring a product line and a geographic market that would increase his company's global reach. Even though he had said yes to the board about retiring, he thought he could put off the directors and leave on his own terms and when he was ready. He had decided ...