Thinkers50 Curated LinkedIn Live with Marianna Zangrillo and Thomas Keil | The Next CEO

Every year, companies spend billions of dollars in board time and headhunter fees on CEO searches. In fact, by many accounts, the selection of the next CEO is the single most important task of the board of directors. Yet, despite the huge amount of time, money, and attention given to the task, many CEO changes fail, with disastrous consequences for all concerned. The authors of The Next CEO: Board and CEO Perspectives for Successful CEO Transition, Thomas Keil and Marianna Zangrillo offer unique insights into their compelling new research.

Transcript:

Des Dearlove:
Hello, welcome to Thinkers50 on LinkedIn Live. I’m Des Dearlove.

Stuart Crainer:
And I’m Stuart Crainer, and we are the founders of Thinkers50, the world’s most reliable resource for identifying, ranking and sharing the leading management ideas of our age.

Des Dearlove:
Our belief in the power of ideas has been the foundation of our work since we launched the first ever global ranking of management thinkers in 2001. And we’ve published a new Thinkers50 ranking every two years since, and it remains the premier ranking of its kind.

Stuart Crainer:
So we’re excited that 2021, a year in which fresh thinking and human ingenuity are more important than ever, is also a Thinkers50 year. Nominations are now open for both the ranking of management thinkers, and the distinguished achievement awards, which the Financial Times, no less, calls the Oscars of management thinking.

Des Dearlove:
Then in the summer we’ll have the awards shortlist to savor. The year’s finale on the 15th and 16th of November will bring all the excitement of a new ranking, and the naming of our Thinkers50 2021 award recipients.

Stuart Crainer:
Our theme this year is Ideas with Purpose. Actually, it’s our theme every year, I think. And our guests today perfectly fit this description. They’re Thomas Keil and Marianna Zangrillo.

Des Dearlove:
Thomas and Marianna are the authors of a new book entitled The Next CEO:
board and CEO perspectives for successful CEO succession.

Stuart Crainer:
Every year companies spend billions of dollars, pounds and euros in board time and headhunter fees on CEO searches. By many accounts, the selection of the next CEO is the single most important task of a company’s board.

Des Dearlove:
Yet, despite the huge amount of time, money and attention given to the task, many CEO changes fail, with disastrous consequences for people and organizations.

Stuart Crainer:
Thomas and Marianna will help us to understand why this happens, and how companies can find the best CEOs for their futures, and create processes that really work.

Des Dearlove:
So we’re going to hand over to Thomas and Marianna. But first, a reminder to send your questions in at any time during the presentation and during the session. Also, please let us know where you are joining us from today. Now Thomas and Marianna, over to you.

Thomas Keil:
Wonderful. Thank you. Good afternoon from us as well. Let’s get started. First of all, thank you Des and Stuart for inviting us today. As the introduction already said, we’re going to speak about some of the insights from our new book, The Next CEO. And what we are really going to try to convince you here is that some of the insights that we gotten from the CEO level are actually applicable for general leadership. So we are going to try to draw some broader implications of what we can learn from CEO succession for leadership in general.

We will keep this presentation short. I will shortly introduce the topic, a couple of frameworks that came out from our book, and then Marianna’s going to take it towards the broader leadership implications.
Des and Stuart already kind of preempted our first slide. We really started this conversation about CEO succession a few years back when we had a conversation with some CEOs that really surprised us, where the CEOs told us that when they entered the company, they found something that they really didn’t expect. And that made us wonder what’s going on here? Where is this heading? Why aren’t people clearly in the know what they’re supposed to do?
So we started to look into CEO succession as a major corporate event. And what you see really is not very pretty. As Des and Stuart already alluded, not only are there every year billion on CEO succession spent, but when you look at the results, they’re not very great. You see incredibly often failure. Some studies say there is every year, a hundred billion in shareholder value destroyed. If you look at the companies, upheaval describes it probably the best. You have lost productivity, you have jobs cut, your financial performance declining. And when you look even at the CEOs, what should be their crowning moment of the career, often ends up to be a really black chapter of the individuals involved.

So also what we asked ourselves is really, what can we do to improve the odds of success for this? And we engaged in a research program that took us close to a decade I would say. We interviewed CEOs, headhunters, chairmen. We conducted a fair bit of heavy quantitative research alongside. And what we are now going to present are just some insights that came out from this multi-year journey.

Specifically, we are going to look at two perspectives. We’re going to first talk shortly about the perspective of the board. And then we are going to look shortly at the perspective of the CEO.

So let’s start with the board perspective. Here, our key insight is really how important it is to have a very clear mandate. When we looked at the CEOs, when we went at the individual stories of CEOs being appointed, what really struck us was how different the jobs where these people were taking. Some were just simply continuing along a path that was well set, basically implementing that. Others were completely turning the company upside down.
And it’s pretty obvious that when you have these very different tasks, you need different individuals. And still, when we look at many of the boards, they are surprisingly vague in terms of what the CEO is supposed to do, what is the needs of the company, and what is really the mandate that the CEO should drive towards.

And our key insight really from the board perspective is that boards need to be crystal clear what CEOs need to accomplish, both strategically and operationally. And only then they can define a CEO profile that actually meets that.

And we identified four such mandates and associated profiles that we are showing here in this slide. We frame them as Continuation, Evolution, Transformation, and Turnaround. Let me briefly explain what we mean with this. As I already alluded to, some CEOs are meant to mainly implement an already well-chosen path. This is often the case when you have a former CEO sitting as a chairman on the board, or you have a family owner that very much drives the strategy. And the CEO then is really just a glorified Chief Operating Officer. In this case, we often see internal appointments working well, people that come from a business unit that have an operational background or a finance background. And these people can do really well.
The second mandate really relates to moving beyond this continuation. Sometimes organizations in the longer run, want to change gradually their path. Or they want to simply speed up the pace of implementation. That still may work with an internal CEO. That still may work with somebody who is operations focused, but often you need actually fairly specific skills for that.

Let me give you an example. When Nestlé changed its CEO CEO recently, they tapped for the first time in a hundred year, an outside CEO, because they were on a path to move from basic nutrition to wellness and health related topics. So they hired Mark Schneider basically to speed up that evolution.
The third mandate that we identify is fundamentally different. Transformation no longer stays in the existing path, but tries to transform the direction of the company, really transform the company overall. Professionalize, lift it up to the next level is the image that I would use. And in that case, we clearly see that internal CEOs no longer are suitable. This is typically the domain of external CEOs that bring in different experience, different vision, different skills. Internal CEOs in some instances, if they are very different from the rest of the organization, can succeed, but it is really the domain of the external CEO.

Let me give you again, an example. The German copper manufacturer Wieland, that not everybody may be familiar with, is what we would call a midcap. It’s a successful company that has potential to go global, but it is not up to it in terms of its structure, in terms of its management skills.
So when the board decided that they wanted to really try to make this a global player, they tapped an outside CEO. Somebody who had worked his whole career at large multinationals, and knew that ballgame. And Erwin Mayr since then has transformed this company, has more than doubled the revenues of the company, through acquisitions and other growth mandates.
The final mandate that we identified is probably the most dramatic, turnaround, when a company is in financial distress. And that is again, the domain of a very specific set of CEO candidates, people that do turnaround for their living. I would almost call them turnaround artists, that basically know how to very quickly stop the bleeding in a company, very quickly bring a company at least into the survivor phase back. Often, these CEOs stay only for a limited number of years, because it is a very, very specific profile.
Jon Lewis at Amec Foster Wheeler is a nice example that basically turned around the company in 18 months. At the end of the time the company was sold, and he moved on to another case that he’s still working on with more difficulties thanks to the pandemic, Capita, that in the UK is a well known company.

So here again, the key insight is that boards need to start from identifying the mandate. And then they need to think about the profile that best matches that mandate.

Now let’s look at the other perspective, the CEO perspective. And here we have three main insights that we want to very briefly share. The first one relates to the period of taking charge. And this is one where I would say we have very strong priors by people saying, “The first a hundred days is everything that matters. You have to take action. You have to very quickly turn the company around.”

What we found is yes, this happens in some instances, but in most instances that’s the wrong strategy. And in fact, CEOs that do well often take a far more controlled pace. Instead of engaging in action, they step back. They are trying to understand the organization. They are trying to establish their leadership brand, if you want.

They speak little, they listen a lot. When they do speak, they are very careful to establish a vision of who they are, and what they’re going to do with the organization. And they take very limited action. They take only very rarely big steps in these first hundred days.

The second insight relates to the idea of a personal platform. We often have this idea that being a CEO is the role of the lone hero that alone transforms to the organization. But reality is obviously that nobody alone can transform a large organization.

And what we found really is that central in this early stage is to build a strong personal platform. That has two dimensions. On the one hand, the leadership team, and that may mean in a transformation or turnaround mandate, dramatic changes. [inaudible] who is in the process of still transforming [inaudible] came in. He was in 15 months, changed eight of nine management team members. Why? There was a log-jam. There were no decisions made. Everybody was fighting after a merger. And he basically had to completely change the management team to get that started.

So building this management team, thinking about what level of diversity, what level of competencies you need, which people will give you an honest opinion, which people are possibly backstabbing, is really central in here.
The second is that also this top team is not enough. But rather you need to build a broader platform, a platform that goes across all stakeholders, across levels and across functions, and allows the CEO to have an ear on the ground, and hear beyond what he or she hears from the first level management team.

And then finally third point, driving results. And here our key insight is that change tends to be painful. And that means two things. You need to really motivate your people over and above and beyond the call of duty. And you don’t do this by developing visions around financial results. Stuart and Des, you gave us a nice starter here with leading through purpose. Purpose is really the word here. You need to get people to believe in what they’re doing, and to go the extra mile for the organization. That requires a vision that really speaks not only to the mind, but also to the heart of people.
And then from there, you need to set priorities, pace, and show perseverance. These transformation projects that CEOs lead can take 10 years. We have instances where, for instance, Feike Sijbesma at DSM in the Netherlands transformed that company over 10 years. That requires a lot of stamina, a lot of perseverance.

So these are just some ideas that came out from our study of CEO. Now I hand over to Marianna to translate this into broader leadership insights.

Marianna Zangrillo:
All right, can go to the next slide. All right, so as Thomas said, the book has actually focused on research that we are conducting during the past 10 years. And we have interviewed predominantly chairmen, CEOs and [inaudible] member.

However, what we found is that a number of the learnings actually are applicable to general leadership, and this is what we want to cover in the second part. I’ll try to be a bit faster so we have some time for the questions and comments. Feel free to write your comments as I go along so we can then maybe answer the questions, but also make it a little more interactive.

So the first thing that we would like to share is that what we observed is that many CEO and chairmen have told us that they’ve been giving job profile to headhunters, for example, for this external recruitment sometimes. And they had difficulties to pinpoint what actually was really needed. A job profile is a good start, but it’s not always the right start, especially if you want to hire someone from outside.

So what we found, and what we kind of got confirmation then, talking to the senior leaders, that the mandate and what needs to be accomplished is very often much more important. And this is probably something that you have noticed also with your own colleagues in your own recruitment. That you have this job profile, but then you’re thinking, “I have this 10 core candidates that really meet the description, but these are not right people for the company.” And sometimes looking back into the mandate can actually help answering that question of what really needs to be done, and what kind of candidate we actually really need. And that applies, as I said, also to general leadership. So also general managers who have maybe team leader responsibilities, and not necessarily only the very top team.

The second thing is that the external versus external hire is a consideration which needs to be made carefully. And it’s not an easy one. First of all, we always want to give our people the perception that internal candidates are considered and valued. Because if we don’t do that, then people lose also the motivation, especially those who are already in management position.
So one needs to balance and on one hand, look at the mandate, when do we need an internal, and when an external candidate is better. But then at the same time, one also needs to think, “Do we actually have the skills which are needed in the organization to take, for example, the company to the next level?”

In the book we shared the story of Riet Cadonau who from a company called dormakaba. I’m not sure if you ever heard, it’s a Swiss company, which has access in security. And basically he came from outside, and he was new to the industry, but they were specifically looking for some IT transformation to transform the overall company to a more technological company. So they took someone from outside because internal candidates could not carry that kind of skills.

Then our third point that we often actually joke about with Thomas, because most senior people do have charming personalities. They know how to sell themselves, but that will not always do the trick once they are on the job. There is extensive research which shows that psychopaths actually are very charming very often, but we don’t want the local psychopath to be our next leader. So this is actually a very difficult element. How do you separate, how do you distinguish someone who’s very charming when it’s coming to the interviews, also with the board, with someone who can actually do and deliver what the company needs, to go to the next level?

Then if we go on with the next slide, still we have a few key takeaways. So Thomas mentioned earlier, the story of Mark Schneider at Nestlé. So Mark Schneider joined Nestlé in 2017 and he joined from the healthcare industry. And now he came to the food industry. Even for a solid guy, as he is, filling the role is like getting into big shoes. So he took it very carefully, and he knew that premature actions can be dangerous. So he worked very carefully on setting expectations, understanding the organization, the role and building the network. And this is something that we kind of were allowed to cite directly in the book. And there is a lot more in there if you want to read about the story.

But basically this was one of the good examples, which is again, applicable everywhere. So any leader who come into the organization should not run into actions. Because on one hand, there is the expectation that you come in and you make changes fast. But then on the other hand, you may actually lose the organization or miss out important points.

Then another general leadership lesson or leadership principle, is that changing the organization is a team sport. We do know that teams always perform better than an individual. We have more eyes, we have more brain, we can combine our strengths. But at the top, very often we have stars. We have people who are or want to be in the spotlight, who are used to be in the spotlight. And this is something that CEOs have to pay very much attention to, because the lonely leader will always lose the team. Whether it’s a CEO or whether it’s a leader at another level in the organization.

And then finally one last general takeaway is that driving results is not a sprint, but a marathon. And then it’s priorities, patience and persistence to win. A nice example from the book is the case of George Mueller, the CEO at MEB, which is a German energy company. Again, probably not very known to many, but he had an interesting story he shared with us, especially on the soft side of things. So he noticed that brand and culture needed a big makeover when he joined the company. And at the same time, he realized that there is just so much that an organization can take. Especially when a company has been on the same path and with the same leaders for a long time.
So he was one of those who actually said that you cannot kind of run this. This isn’t a sprint, but this is a marathon. You need to take it in steps, and you need to take it in badge, and you need to take the organization with you.

So there are a number of other leadership principles that you will read about if you have the chance to read the book. But I think this was some that we decided to pick up, because they are a general applicability. And then I think we still have now some time that maybe we could leave for questions, and any comments you guys might have.

Stuart Crainer:
Thank you, Marianna. Thank you, Thomas. Really really interesting stuff. There’s a good question from Kenneth Ritley who’s in Zurich. And he’s asking, “Should there be kind of a cooling off period for both sides?” You hire a CEO. I mean, your advice to a CEO is that a CEO should look around and listen, and not do too much in the first place. But perhaps there should be a cooling off period for the CEO and the board. I think it has happened in kind of corporate history where a CEO has been hired, and they haven’t lasted very long. Do you think that’s a good idea, or is that just impossible?

Marianna Zangrillo:
Thomas, do you want to take it?

Thomas Keil:
Yeah, I can take this. I think there is this two things here. On the one hand, I like this idea, that wasn’t the question, of due diligence. Because due diligence is something that do before you buy.

Stuart Crainer:
Yeah.

Thomas Keil:
So my first response would be, you need to do more due diligence before you buy the next CEO. So that means you need to spend more time on identifying, so that you’re not you’re not running into these issues. Boards often spent too little time.

Then the other element is boards need to be very realistic in terms of how fast things can happen. You know, when you hire somebody to steer around GE that is in trouble. And then after 12, 15 months, you’re saying, “Things aren’t moving too fast. It has to happen faster.” I don’t know if that is very realistic. So the time periods are an issue. So you need to give people a grace period on this. Because especially when it’s a transformation, it is big ships don’t turn fast, corporations don’t do either.

Marianna Zangrillo:
And if I can also add there, there are some examples in the book where we basically mention that someone came on board and then after a year, it was a major disaster and had to leave. And this was actually a serial CEO. So someone extremely experienced, there was no sign that things couldn’t work, but unfortunately things went really bad, a really large corporation. But the problem is that when someone comes on board, most of the time, it’s a big change also for the individual. There is excitement to be announced. There is excitement to communicate the change. And it’s very hard to get someone on board in the background and kind of make in practice to see how things are going.

Maybe I could take also the next one, which came also from Kenneth, if it’s okay. This is actually a very good question on whether the board is having a clear view on reality. After we wrote the book, and we obviously sent it to all the people that we have interviewed as a complimentary copy.

We actually got a feedback that they could in the semantic structure for the first time, see clearly a lot of the mistakes that they made in the past. And the idea of the book is that it can serve as a framework for the senior management and also for the board, on actually how to put things a bit more in perspective, and be a little more structured and realistic about what they actually need to do. Because in reality, very often things happen based on personal liking, and you trust headhunters. So this is a very good question. And it’s something that we do believe and hope that the book actually can help answering.

Stuart Crainer:
I think Kenneth’s point as well, I think is related to that, is that shouldn’t it be the CEO who needs to determine the mandate? I mean, I think it’s really interesting you’ve identified the four mandates, Turnaround, Continuation, Transformation, Evolution. The board determines the mandate and hires the CEO accordingly. But what happens when the CEO turns up and he says, “Well, it’s not really evolution you need, it’s transformation?”

Marianna Zangrillo:
This is also an interesting aspect. We have not put in the presentation, but we have talked a bit of the CEO adjusting the shape, the shadow of the board when the board is really making the decisions. And it’s really telling how things have to do. And when the board is too firm and strict on what they want and does not let the CEO kind of make some assessment and then make the changes needed, then the chance of failure is much higher.

So definitely the CEO should be brought on board to decide what kind of mandate it is. But at the same time when selecting the CEO, that is not very easy, because you cannot have those conversations with many candidates. So you have to somehow have a guess of what mandate is based on your understanding. And then at the same time, leave the CEO room from maneuvering, and possibly adjust the mandate as needed.

Thomas Keil:
Let’s say it’s a very high risk situation.

Stuart Crainer:
Aleksandra’s got a question. Can selecting the next CEO be … I suppose what she’s getting at is can you make a statement? And can you really communicate a change of direction? I suppose the example you gave, Thomas, of Nestlé, the way they changed their CEO, and the experience of the CEO was in a different sector, and therefore that was a strong statement. So I suppose the hiring the CEO’s always a statement, to a greater or lesser extent.

Thomas Keil:
Absolutely. I think we’ve heard this over and over from boards that they said, “Okay, we hired this person because we wanted to make a statement.” To give you an example regarding diversity. You know, Novartis recently hired an Indian physician, trained in the US, as a CEO. Explicitly somebody who was not part of the mainstream culture in the organization. Explicitly as somebody who was an outsider to the Novartis culture. And the chairman said, “We wanted to make a statement that we need cultural change.” And that that’s what he’s been doing ever since.

So CEO selection is always a statement. Maybe diversity in terms gender, diversity in terms of race or nationality. Maybe in terms of from what industry somebody comes. They are definitely communication statements that should set the organization. That’s why it’s so dangerous if you’re not clear where you want to go, and then you are setting a statement that is ultimately setting the organization on the wrong path.

Marianna Zangrillo:
And if I can also add there, this is a very tricky topic. Because sometimes the selection and appointment are made predominantly because they want to send a message, and the other more important element get obscured. And then, it brings to disaster.

So there have been cases where, for example, the board said, “We need to have minimal two, three women.” And they were kind of in a hurry to appoint these two, three women. And then after … we have seen cases where they also there less than a year, a year and a half, then [inaudible] that it actually didn’t work out. They were focusing on the message, or what maybe the law, for example, in Germany, requested them or required them to do, but not really then on taking the time to identify the right candidate. So it’s definitely something that we see, but it’s also something that has a high chance of failing, if not done carefully.

Stuart Crainer:
Is one of the issues here that we overplay the importance of CEOs? That really, I mean, change in direction of an organization, as you say, is not the work of one person. It needs a lot of people to be involved. That we put such great store in CEOs, when actually their contribution to an organization’s performance at best is only improving performance by small percentage points.

Thomas Keil:
It’s a wonderful question. One that one can debate forever. It’s kind of funny, because what you notice is when you have strong CEOs, over time the organization looks like that individual. But at the same time, no CEO can get anything done without the organization.

So I don’t think there is a straightforward answer here. I think we are expecting often too much from the CEO. We are expecting … We are not giving enough credit in fact to the team behind that. But a great CEO is a CEO that actually selects a team that is individuals that compliment each other, that form a high performance team in the end. And I think that is the biggest skill probably that a great CEO has to have. Not to single handedly, miraculously transforming an organization.

Des Dearlove:
Fascinating. I’m having problems with my microphone. Stuart, I think [inaudible].

Stuart Crainer:
[inaudible]. So where does the research go now, Marianna and Thomas? You’ve got the book out, The Next CEO, available in all good bookshops, and online. We encourage people to buy it. So people have always got the next book planned out. So where does the research go?

Marianna Zangrillo:
Well, I’ll start. And then Thomas, maybe add something. So basically what we noticed is that while we have interviewed a lot of CEO and chairmen, a lot of the principles are applicable in the organization at large. So what we want to do is to expand on the existing book, and basically take the principles to the next level, so that the audience gets broader access, broader audience, and basically see how these principles really translate into the organization at large, with more examples which are relevant for managers and the senior leaders, but not necessarily the management team.

We have actually planned to take next year for the research. So also we’re very interested in this webinar today. Reach out if you want to be interviewed to help us developing the next book. Thomas, how about you? You add the academic side of things. Where is the research lagging that we need to fill a hole?

Thomas Keil:
Oh, there is always too, too many holes to be filled. No, I this final point that we just talked about, the idea that no individual can change an organization, but that you need high performance teams on every level, and how you can create these high performance teams so that you leverage different skills, that you are really leveraging diversity, rather than just using it as a fig leaf to tick some box on a governance sheet. Those are ideas that we are at the moment actively kicking around. So that in fact, now we have the head, now we need to actually do more on the body of the organization.

Stuart Crainer:
Let’s just frame one final question from Tarik-François, do you include the current CEO on how the company’s building a succession plan? So you’ve got a CEO in place. The company’s going well, the CEO’s moving on. How involved should they be in mapping out the future?

Thomas Keil:
I can take that. It’s a tricky question. You do need to have the current CEO to build a succession pipeline. Without the current CEO, you cannot have internal candidates, because any current CEO can completely destroy any roster of candidates. If you have a CEO that doesn’t allow any other princess next to her, then you will never have a roster of internal candidates.
At the same time, when you have a CEO that basically plans to continue behind the curtain, head of the organization as a chairman, that’s super dangerous, and leads to situations where the new CEO can’t do much. So I think it’s really, it’s a very double edged sword. I would not have the CEO in the selection process because that’s super biased. But you want to have the CEO involved in bringing forward candidates, developing candidates, but then cooling off is a healthy thing to do, I believe.

Marianna Zangrillo:
And I think there is also an element of looking into the mandates. So if we are having, for example, a continuation strategy, may be easier both to bring in an internal candidate and select the right one. Or in some cases external one. But if you have a big change to make, and the same time the company’s bleeding and the organization is unhappy, then the internal CEO cannot definitely be involved, because it’s not only biased, but may even sabotage the selection.

Thomas Keil:
Look at Daimler at the moment that had the CEO change. And the CEO now is being blamed for not having prepared the company sufficiently for the electrification. And how can you have that person strongly involved still in the organization and the CEO selection, et cetera? And he had at least the good sense of stepping back and saying, “Okay, I’m now taking myself out of the process. I won’t join the board.” Those are situations that are definitely not healthy for organizations if the CEO then stays on and needs to basically approve on doing what the CEO has created herself or himself.

Stuart Crainer:
Marianna and Thomas, we’re out of time. So Marianna and Thomas’s book is called The Next CEO. This was a taster of some of the ideas there. It is a smörgåsbord of research and interesting perspectives on what happens when CEOs leave and are recruited, with much broader implications, I think, for organizations and their processes.
So thank you very much, Marianna and Thomas, for joining us today, and thank you everybody for watching. Next week at the same time, we will have Tiffani Bova from Salesforce, author of The Growth IQ, telling us about her latest work. So thank you all very much.

Thomas Keil:
Thank you.

Marianna Zangrillo:
Thank you very much for having us, and thank you very to everybody for attending.