No, A New CEO is Not the Golden Solution
Image credit: Dilbert.com
There is generally a lot of energy and enthusiasm around the hiring of a new CEO; especially in a distressed company.
- Where did they come from?
- How great they are?
- Are they are going to turn things completely around in one quarter? NOT!
Excessive coverage by the media even before the new CEO officially arrives and during the early stages often makes matters worse! If a company is doing well, the CEO does not leave or when it is time to leave, there is a well planned succession plan. So, in the case of IBM, the January arrival of the new CEO was in the works for a long time, was a smooth transition and not discussed much in the press. Almost a non-event! The problem is with highly distressed companies, where the CEO has left or most often been let go with some Hollywood-like drama, and like the next episode of Dancing With The Stars, the anticipation (and press) for the new CEO gets overblown. Ah, will the celeb fall down, or screw up… and millions gladly tune in every night!
The fact is that a distressed company needs time to formulate and execute a vision, rebuild the enthusiasm and internal morale and establish a solid presence. This is not solely done by bringing in a new CEO. If you are ill, it doesn’t matter how you dress, the illness is paralyzing and soon enough reality will surface! Examples are plenty but I would like to two recent cases.
First, Hewlett Packard. In a span of 12 months, HP went through the drama of ousting one CEO, bringing on and firing a second CEO. Then transitioning a board member to be CEO. HP is an example of a superbly competent company, a legend, in fact. But before this 12 months of repeated overhauls, the company was still adjusting to integrating major acquisitions and building its identity and an integrated company. That takes time. Each major CEO transition completely changes teams, execs, vision and priorities. Imagine that happening three times in twelve months! These are the nasty details that we on the outside world don’t hear about. Sure, HP still sells tons of products but let’s respect the fact that the new leader has to have time to build the company up, AND, just because there is a new CEO, doesn’t mean the employees just adapt immediately. They have to be convinced, inspired, elated to be part of the new CEO’s drive and vision.
Second example, Yahoo. In what will go down as one of the more unprofessional exchanges between an ousted CEO and the board, and much to my dismay, another top female CEO bit the dust. Yahoo was a huge player and for the last several years has struggled to establish its path. What is Yahoo great at and how can it diversify? And now they also had the void of waiting for a new CEO. In came the new CEO this month and with it, unrealistic expectations that magic will happen. First, Yahoo as a company will need to work on developing its identity, strategy and inspire its staff. In parallel, the Co-Founder leaves at exactly the same time! That can’t be good, right?
Yes, if a company is extremely well run with a strong vision, market strategy and acceptance, a new person can assume the CEO position and rock and roll. An example is Steve Job’s selection of Tim Cook as CEO of Apple. But let’s face it, Apple’s identity is so strong right now, the culture so innovative, that the new CEO’s job is to continue to drive it forward, not establish a new vision or work as hard to get buy-in internally or externally.
What do you think? For now, I will say that I don’t think a new CEO is the golden solution. There are many cases we can analyze together.
Would love to hear your thoughts!
Just to add some more, look at the mess in Nokia (they got their ‘new’ CEO about a year ago and bet on WinPhone while their N9 without any marketing sold more than their new Lumia!
New CEO, huh! Right!
Then there is RIM’s mess, although at least RIM realized old CEO had to go but new was not the answer (at least not yet).
I think it all depends on the skills and qualities that the new CEO brings, just “new” by itself is empty.
Good write-up!
Cheers;
You may have a point there when you quantify it as “golden” solution. But in the last decade, I stumbled across 10 top examples where new CEOs made a huge difference in turning around the companies. The list does include Mark Hurd of Hewlett Packard and Terry S. Semel of Yahoo!.
Mark Hurd was praised as the best CEO for stabilizing the HP from its messy Compaq merger and more than doubling its share value per earnings within 3 years. And Terry S. Semel turned the company around from $93 million loss to a $43 million gain within one year.
Of course the list included the called-back CEOs Steve Jobs of Apple and James R Cantalupo of McDonalds.
I think it may not be the Golden rule always, but a fresh set of eyes will always make a difference in trouble times.
The examples in this blog are great, you simply can’t make these story lines up. My company is in the middle of transitioning from one CEO to another. The incoming CEO is the former CFO then COO and now has been announced as the next CEO. I don’t regard this to be as smooth as the example of Tim Cook and Steve Jobs. Time will tell.
Paul Hilde
Overall, I agree with your post. Hiring a new CEO isn’t always the answer. Sure, with the right credentials, background of success and vision, that person can achieve great things and make great strides towards reinventing a company, however if the company has deeper wounds than on the surface level, change needs to come from within, and that type of healing takes time. Changing CEOs like HP won’t solve a thing–it becomes the cup game.
Getting to the root cause is essential to solving the problem. I envision that this happens more often in mature companies vs startups due to the complacency and jaded attitudes of employees. Success is a team effort and without the commitment of everyone on board, there will be rough roads ahead.
The parent company I work for grew revenue to $7.7 Billion in 2011, and this is while the company seeks a replacement for our current CEO who stayed on past his retirement. There is strength and momentum in the various channels of this company, however it will be interesting to see how this plays out over the next few years.
From my experience working in teams, a CEO cannot single handily create a success formula. The CEO has to work with his subordinates and the employees in order to stir the whole ship one direction without crushing into ice bergs. The CEO has to be a team player and a visionary CEO who is liked by his subordinates.
BBUS 525 Blog Response
I believe it is human nature to try to find someone or something to blame for your troubles. In regards to a declining company, most often than not, the CEO takes all the blame. But a new CEO doesn’t mean that all the companies’ problems will go away.
Bringing in a new CEO without thinking what the root cause of the companies problems doesn’t help anything. A steady transition plan has to be followed. The company’s culture and operating philosophy will change with a new CEO. This may be purely due to the media. A declining company needs to reinvent their culture and take a hard look on how they operate. They need to adapt from the bottom up, not the top down.
Not sure why the board or any governing body believes a new CEO is the cure all. Being a prior employee at Progressive it killed moral when Peter Lewis stepped down. He was replaced by Glen Renwick a results driven CEO that was a 180 degree turn from Lewis. Peter Lewis had an open forum speak your mind top down leadership approach. In general replacing leadership confuses your workforce as to where the company is heading next. I don’t understand it but change is good for the share price in the short term right?
I have seen CEOs leave because the company has done poorly who should have left years before. One left after 3 years of excellent service and went on to a successful but less stressful job. The best CEOs I have seen have come from the company and are familiar with its goals and strategy. Everytime the company has gone outside the result has been poor. One new executive said the company didn’t need to advertise because everyone had heard of it. Needless to say that didn’t work. One time they tried a caretaker CEO and that didn’t work too well. Companies where the founder is CEO are a particular challenge. Each company must be evaluated individually Steve Madden went to jail for a few years but came back to successfully run his company.
There are cases where a new CEO might be a solution for failing company, but there are many more cases when this will not solve the problem. This leads to another question, Is the CEO directly responsible for innovation or responsible only for setting the environment and inspiring others? Does a CEO need to be innovative to be effective?
Most innovation happens outside of the boardroom or C- level suite, except for Apple (Jobs), Amazon (Bezos) and other companies where the CEO is also the founder. The job of the CEO is to foster and support innovative activity. Changing the leader at the top may not change the culture of the organization. If employees are not already collaborating across functions and coming up with disruptive innovations, a new CEO is not likely to change this. In the case of a tech start up, a more experienced CEO is brought in to supervise the highly disruptive and innovative entrepreneurs. It is much more difficult for a new CEO to create a disruptively innovative environment from the status quo.
It’s unfortunate that through continuous corporate success, and even years of “Superman” like accomplishments in American business, we’ve come to expect change to happen almost overnight.
All too many times, we forget that successful companies were not built overnight, and nor did their fall from grace occur overnight. Yet, for some reason, we expect the turnaround to happen immediately.
American business, and culture is changing. Probably as fast as people can type blogs randomly on the internet.
It’s important to remember to think before choosing a CEO, and have someone who will truly understand the culture, and the business.
It depends! My first reaction is I dont think a new CEO is the right answer either. But what are you expecting from the new CEO. Like you stated, the case of Apple, Tim Cook’s job is to drive an established culture and vision foward. My opinion is in cases where the company is not doing well, a new CEO is the answer. He/She is needed to create a new culture and vision. He/She is ultimately responsible for employee buy-in and the eventual success of the company. I think the bigger problem is the impatience shown when results are not immediate. Flipping CEOs at a whim isn’t the answer either.
There will be an example for every point of view (see Steve Jobs coming back to Apple) but in the end simply choosing a new guy/girl does nothing for you. What a company needs to focus on I believe is a leader with an approach that fits the company culture (or doesn’t if that happens to be the issue). Also, I think that the media blitz approach has one benefit: stock price. Typically short lived the short term thinking behind this decision may signal something greater about the decision makers. Behind all the CEO’s there is typically a large ego that will inevitably result in a Yahoo or HP but the next person needs to have the vision with the backing of the board to succeed.
When we are talking about companies in distress, there is almost always more wrong than just the CEO. However, as the company’s leader, the CEO often takes the blame. And rightly so. It is the CEO’s responsibility to ensure a profitable and successful path and strategy are created, implemented, and delivered. If this does not happen, the Board, employees, and customers lose faith in their leader. The only answer is to bring in someone new with fresh ideas.
I think the problem with companies in distress is they rush when making the decision to hire a new leader. Obviously, since they are in distress time is most likely of the essence. However, bringing in new leadership is just like a merger and/or acquisition. There should be a plan in place, the right questions need to be asked, and the Board must do their due diligence. Quickly hiring someone to come in and save the company (HP) without really doing one’s homework will result in 3 CEO’s in a 12 month period. This kind of irresponsible hiring of key leadership has a reverberating effect on employees and customers…two components that make a company successful in the first place.
As Sam said, simply getting a new CEO to replace the old CEO is not the answer — the result is just more of the same. However, carefully choosing a CEO to accomplish what the old CEO couldn’t is completely possible. Lou Gerstner was carefully selected to turn IBM around, and he did a spectacular job of using the CEO position’s authority to rally the company, provide clear guidance on the path ahead, and build inertia towards success.
Personally, I think Carol Bartz is pretty great just because she’s willing to speak her mind:
“I said, ‘Roy, I think that’s a script,'” adding, “‘Why don’t you have the balls to tell me yourself?'”
Using a strategy of replacing a CEO in order to solve all your problems is at best short-sighted. Does the new CEO share the culture of the company? If not, is the culture she’s bringing with her a culture that is consistent with the long-term strategy of the company. Also, what is her plan to change the culture? Is she inspirational enough to change the culture? Can she get the teams excited that this time the culture will change and management will change?
Assuming the culture needs to change to one of innovation, discovery, observing, and experimentation, the best approach would be a mix of the bullet and the cannonball approach and the 20-mile march. Understand that the change will take time, fire the bullets of gradual change. Don’t delete your arsenal trying to take the culture by storm. All in is very exciting at the poker table, but is not the proper focus in the board room. Start the dialog by finding out what’s broken and gather input from all the stakeholders, especially those in the midst of the ailing organization. More often than not, key insights can be discovered there. Go into the ailing organization and live in their shoes for awhile observing. Let them experiment with new solutions. Failure is OK as long as you learn from it.
A lot of companies look to bringing in a new CEO as the elixir to heal all that ails them. It’s like the mechanic who randomly replaces parts on your car without investigating the root cause of the problem.
As many other commenters have pointed out, changing CEOs can help, but it isnt’ always a silver bullet in reforming the organization. Any organization is as strong as the sum of its parts, and as weak as it weakest link. If the weakness starts at the top, it’s pervasive. But if the weakness if pervasive anyway, changing the top alone won’t help.
At the soul of this issue is this: what’s the role of leadership in organizations? For many iconic tech companies, the names and faces of leadership are synonomous with the company, eg Steve Jobs=Apple, Bill Gates=MSFT, and Zuckerberg=Facebook, and their impact on the organization readily amplified. Yet as organizations grow and mature, distance to the top increases and new idea spaces emerge, so that leadership’s role is weakened, and CEOs become characters whose plights we follow remotely, with, as Linda puts it, Hollywood-like drama.
It really depends on the situation, but in a company I worked for where a new CEO was brought in, the results were disastrous. I worked for a small company where the board fired the CEO soon after the company had acquired another small company. The board then appointed the CEO of the acquired company to be the new CEO for my company. Within months of becoming the CEO, he decided to shut the company down and dissolve it. He wasn’t even willing to try to fix it, which was sad because all the employees that were left were actually very jazzed and motivated to save the company.
When a new high profile CEO is appointed to a flailing company, it is a perfect setup for failure. The new CEO has likely been riding on success of the past and comes in with an ego to protect. Rather than committing to what’s important to revive the company, the CEO commits to keeping his/her ego intact and does whatever it takes to protect it. When the company continues to flounder, the CEO blames outside forces, declares the company a lost cause, leaves with an enormous severance package, and eventually finds another company to screw over.
Whether a new CEO is a golden solution or not depends on the situation. If company is not doing well during good times, or loosing more money compared to industry during bad times that means something wrong with leadership, execution skills of the CEO. Choosing a new CEO carefully who can fit for the position may turn-around the company situation.It is important to link CEO’s compensation completely to company’s performance, which should force CEOs to act to their level best in the best interest of companies. Also it is important to identify the successor to the current CEO, which should help avoiding chaos to find successor and also ahead identifying helps to find right person to the job.
Great examples in this blog! My company is currently in process of transitioning CEOs. This was announced last fall and the transition should be completed by this fall. The funny thing is our stock price went up by almost $10 a share after the announcement. At least Wall Street is ready for the change. It will be interesting to see how this unfolds over the next couple years.
In your post, you cite the few examples where a new CEO doesn’t seem to help. However, I would argue that in many cases, a new CEO is exactly what is needed. Many companies become complacent. They do not look to innovate nor do they try to increase their capacity or capabilities. For these companies, a new CEO IS the Golden Ticket. A new CEO, one with a strong sense of purpose and the desire to work hard will make a company better. The CEO will bring in Disruption and Innovation. Isn’t that what you want? Yes, there have been plenty of examples where the new CEO doesn’t make a difference. To that, I say the Board chose the wrong person for the job. A good CEO will make a difference for the better.
As this blog post rightly points out, CEO transitions especially like the ones that rocked HP and Yahoo cannot be good for the people involved. In my opinion though, CEO transitions in general do not necessarily have to be bad. Look at Apple and how Steve Jobs turned it around after getting back at the helm. Another example is Starbucks and how Howard Schultz brought back the soul of the company. CEO transitions should be deliberate and well planned, backed by a sound long-term strategic imperative as opposed to a reactive move. Otherwise, these transitions are bound to fail leaving companies dry to die without long-term vision.
A new CEO could be a golden solution in at a stage in the company where innovation is required. Hiring a CEO who is high on innovation than delivery would help because he/she would be supportive of innovation. He would also attract more innovative people as like minds attract each other.
Oh, another Dilbert gem… I agree with the underlying idea behind this cartoon portraying a “new” CEO as the Devil. I also agree with the post’s argument that bringing a new CEO is NOT enough to fix a company that isn’t performing well. Many more changes and restructuring should probably need to take place as well, as appropriate. Nevertheless, I believe it is important to see some heads rolling if the firm wants to show that it has real intentions changing things around. Leadership changes should have parallel transformations throughout the company. This would help employees, customers, and investors see how serious a firm is in its intent to move forward.