A struggling bank with a poor asset base recruits the top performing sales head of a rival bank. It captures a big market share in the next few years. But then its NPAs (non-performing assets) become significant.

A large IT services firm wants to transform itself into a blue-blood technology company and hires a technocrat as its CEO. The organisation is able to attract some very good technology talent and a few marquee clients. But, eventually, governance and stakeholder management take a beating.

An ambitious domestic airline wants to go big, needs to negotiate complex and large multiple deals to buy aircraft with favourable terms. So it appoints a General Counsel as CEO. Years later when the airline wants to expand internationally, it thinks the incumbent CEO cannot extend himself to the new challenge.

Sounds familiar? Companies are increasingly finding that as times change, the CEO’s profile also needs to change.

Unlike born leaders there aren’t born CEOs. All have to climb the ladder to get to the corner room. Let’s list the precursor roles: CFO, Head of Marketing, General Counsel, COO and on the rare occasion, CHROs. What’s your guess on how they cleared the last hurdle besides the luck/ favouritism factor? For that, we may need to dive deeper into how boards choose their CEOs.

The power of context

First of all, the boards consider the context of the organisation. The organisation’s need to start up, turn around, sustain success, build process plus controls, innovate for new products, expand globally, and acquire assets will decide the kind of person who becomes the next CEO. It goes without saying that most employers go for an external hire when they don’t find the competence internally for their context.

Claim to fame

Context cannot be ignored by boards to meet shareholders’ immediate needs. So, when they make their choice there is always an element of risk about the long-term future. In spite of this, the boards look into what the CXOs bring to the table immediately, based on their past roles. Every professional has a primary functional expertise which is what they have done for the longest time. Though many of them would have developed strong leadership skills, their functional expertise distinguishes them from the rest. This specialist knowhow becomes the bone of contention when the board makes that call.

After all, the CEO isn’t just a manager of multiple departments, there are functions where he is supposed to lead as well. It is very difficult for all the new CEOs to seamlessly adapt to multiple roles. There are certain departments where they will be a natural fit and challenged in a few others – this most often decides their fate.

The hangover effect

In many cases, the new CEOs end up spending too much time in their area of strength, or let’s say their past roles. The ex-sales CEO on sales, the Finance background CEO nosing into the books of the finance team or the marketing-oriented CEO deciding to personally vet each campaign are common stories we have heard before. Whether it stems from their need to contribute to their expertise or an inability to focus on new areas is a matter of debate. It’s more likely that the new CEOs who adapt to the remaining functions faster are likely to be more successful and also liked by their stakeholders.

I once had a CEO who was an ex-CFO. Our conversations always revolved around controls and risks. So, when the entire competition gained from the buoyant market, we were busy focusing on process, Excel sheets, PowerPoints, and reviews. Nobody went to the market as the CEO hijacked all of us with internal meetings. We became the most compliant company when our competitors moved up as market leaders.

The polymath CEO

The dilemma for most boards is that they want a dominant functional expertise for a CEO-elect to meet the context and at the same time a polymath who survives the diversity of the role. This quintessential CEO is not uncommon but difficult to find. In many cases, the board does not provide the space and time for the specialists to adapt. The context and the claim to fame-based hiring rob you of the opportunity to look for a multifaceted CEO. Sometimes, being a polymath is also a choice. It depends on the intent and the mental make-up of the CEO. Hence, many boards opt for psychometric assessments to get a peek into the personality of their future hire.

Once when we were grooming CEOs internally we thought we found most of the leadership qualities in our Finance Head. But, every time she was given a business opportunity, she ended up spending more time on the finance part of the role than the other aspects. So, it wasn’t competence but her natural behaviour and intent. She lost the CEO role to the Operations Head though he possibly ticked fewer boxes than her.

Fixed-term CEO?

Every organisation needs specialists in almost all roles except for the one at the top. We are aware of the switch this role-holder needs to demonstrate continuously. For many, this is difficult as it’s almost like changing their DNA and the functional identity they lived with for more than two decades.

I always wondered if a five-year term for every CEO should just be the apt solution. This would enable the organisations to address their current context and get new CEOs for the next challenge. I know it is difficult to execute, but the rate at which companies are disappearing from the Fortune 500 list, it could well be one of the survival tools.

Kamal Karanth is Co-Founder of Xpheno, a specialist staffing firm

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